In venture capital, returns follow the Pareto principle - 80% of the returns come from 20% of the investments. Early-stage venture capital firms have often been attractive to investors, providing lower valuations with the opportunity to obtain significant equity ownership in portfolio companies.
In today's Topic of the Month, we take a deeper dive into the numbers posted for a couple investments prior to their IPOs and acquisitions.
Facebook’s $22B acquisition of WhatsApp in 2014 is the largest private acquisition of a VC-backed startup. It was a huge win for Sequoia Capital, the company’s only venture investor, which turned its $60M investment into $3B. At the time of acquisition, Sequoia owned 18% of the company and its shares were valued at $3bn, representing a 50x return overall.
Zynga’s $7B IPO in 2011 made social gaming history — and was an important moment for Union Square Ventures, which owned a 5.1% stake worth $285.1M when the company went public. USV lead the company's $10mm Series A round when the company was less than a year old and made a 75-80x return on the original investment.
After taking a closer look at some of the largest VC exits, it is evident that VC investments provide an opportunity for outsized returns and are a result of detailed research/due diligence, strong convictions, and committed follow-through. If you are interested in learning more about the role of venture capital within family offices, feel free to contact us at email@example.com.
Originally published in the April 2018 LVAM Newsletter.