Venture Capital’s Magnum Vintage
From 2006-09, USV *led* Series A deals for Etsy, Tumblr, Twitter, Zynga, Disqus, Foursquare, Twilio // Leading at A is the art of venture.
— Semil (@semil) May 19, 2013
Ever buy and reserve a nice bottle of wine, only to open on a special occasion, years later? Well, in venture terms, get out your finest decanter, because we are about to taste the notes of a vintage rarely seen. Now, there are the Accels and Google-backers of the world who can still, to this day, enjoy a return from one company, the right bet placed at the right time — but on a pure batting average basis, what Union Square Ventures is pulling off is insanely amazing. Of course, everyone knows this, but I wanted to gently dig into how great this could be with some rough calculus.
A few serious disclaimers as I try to string this together. One, it’s not gentlemanly to keep score (especially about money), but in terms of venture, what USV is beginning to realize warrants attention and respect. Two, the information below isn’t 100% accurate because I don’t have all the data, nor do I seek to obtain it — I want to simply scribble on the back of an envelope and try to quickly approximate the scale of their success. Three, I’m making a lot of assumptions to back into a numbers at the bottom. I’ve probably made lots of mistakes, just using my intuition based on CrunchBase. Four, I’m bullish on all of these companies myself and trying to be conservative in approximations. Five, I’m not sure if these investments were made out of the same fund. Six, I don’t have details about follow-on funding, sales of secondary shares, or any blended averages. And seven, I’m only looking at a small handful of Series A investments made within a 3-year timeframe, so this excludes a lot of investments the firm made before and after the fact, leading up to today. I repeat, this is a small cross-section of their vintage, but a juicy cut at that:
- Tumblr: $750K in at $3M pre-money valuation, plus follow-on funding, sold for $1.1B to Yahoo, generating a return now of 293.3, or at least $220M
- Zynga: $2.5M in at $20M post-money valuation, conservatively assuming majority holdings liquidated at $5B valuation in 2011, marks ~250x return, or $625M
- Disqus: assuming $7.5M in at blended $30M post-money valuation, and I’m very bullish on this company and feel it’s underrated and will be a sleeper $500M+ exit, so will approximate a ~17x return, or $127.5M
- Foursquare: assuming blended $5M into a $50M post-money valuation, and although I’m bullish on this company (thought that’s controversial), I’ll conservatively say they can liquidate at $600M valuation, will mark ~12x return or $60M
- Twilio: assuming $3M into a $17M pre-money valuation, this is another billion dollar company in my opinion, so estimating a ~50x return or $150M
- Etsy: assuming blended $4M in at a $12M pre-money valuation, conservatively assuming exit will be $500M at least, so marking a ~31.25x return, or $125M
- Twitter: $5m in at $25 valuation post, will conservatively assume majority holdings liquidated in secondary offering around $200M/$4B valuation in 2011, marks a ~160x return, or $800M
- *** Lots of assumptions here, again. *** Yes. But, if we add up these end numbers and assume it’s the same vintage, we’re looking at at least $2.1B+ in gross cash returns generated by seven (7) investments made within a 3-year period, this all with $150M fund-size gunpowder — not a mega fund. Huge.