7 ms·

In case anyone is missing what has happened here, this is why people hate on private equity/VC. As far as I can tell, Loopt wasn't doing very well. http://www.

In case anyone is missing what has happened here, this is why people hate on private equity/VC. As far as I can tell, Loopt wasn't doing very well. http://www.google.com/insights/search/#q=loopt.com&cmpt=q http://www.google.com/insights/search/#q=loopt.com&cmpt=... They had an attempt to revive the company to compete with Groupon last year that many here thought was stupid and died an early death (http://news.ycombinator.com/item?id=2696412 http://news.ycombinator.com/item?id=2696412) Michael Moritz (Sequoia partner) is still on the board of Green Dot, now a publicly traded company worth north of a billion dollars. Almost the entire board (http://ir.greendot.com/phoenix.zhtml?c=235286&p=irol-govBoard http://ir.greendot.com/phoenix.zhtml?c=235286&p=irol-gov... ) is Private Equity/VC guys, they do this kind of inside baseball all the time, it's no sweat off their back to do Moritz a favor. He convinces Green Dot to acquire Loopt for a huge amount of cash (Green Dot was sitting on $225 million in cash). Sequoia makes a cool $15 million. Related: the always-informative Planet Money did a special on Private Equity and you can see how Bain Capital got its money back on a company that went bankrupt: http://www.npr.org/blogs/money/2012/02/23/147257517/how-mitt-romneys-firm-tried-and-failed-to-build-a-paper-empire http://www.npr.org/blogs/money/2012/02/23/147257517/how-mitt... TL;DR the company they bought acquired another company and raised significant debt- they used that debt to pay back Bain Capital.

shareme 15y ago
some backstory..beware personal opinion I had the opportunity to interview with Loopt sometime ago, right when they in fact did the name change to Loopt. My read than was that they in long term terms were going to fail as certain constraints to do things were not in their best interests...at that time it was Mobile Operator limits..tie-=ups Its a sad thing as current deal looks to be only based on patents values..not what Sam's team put into it..
nikcub 15y ago
raising debt to pay a dividend back to investors is more common than not amongst the LBO funds. it makes sense if you have a steady and decent income stream, it is a bit like drawing down on equity in your house in order to take a holiday, except the rates are much better (when people complain about this, I am not really sure what they want to be done about it) the VCs of silicon valley are very far away from the Wall St type of private equity (although they are becoming closer with the secondary markets now opened up - it used to be that your vc investors were in all the way until the exit) as for Sequoia, it is pretty well known that the top tier VCs look after their own. Look through the Sequoia history and you won't find very many outright failures, it is a reason why entrepreneurs choose to work with them. I very much doubt Moritz can 'make' Green Dot do the deal, but I am pretty sure he put it all together - it is more a testament to his/their dealmaking abilities than any leverage he would have as a minority shareholder and director in a public company.
- phillmv 15y ago
  >as for Sequoia, it is pretty well known that the top tier VCs look after their own. Look through the Sequoia history and you won't find very many outright failures, it is a reason why entrepreneurs choose to work with them. Oh, I just want people to stop pretending this is a meritocracy.
- deleted 15y ago
  [deleted]
adamtmca 15y ago
Planet Money also did a follow up on one of Bain's deals that went right. TL;DR Bain bought a company, levered it up, restructured it and successfully took it public. The company executives all got bonuses, Bain made a ton of money and the workers got to keep their jobs. The company is still running today.
majani 15y ago
Buddy exits like this one and the Hunch exit are very demoralising. They make startups look like some sort of game. As you indicated, Loopt was clearly dying ( http://www.google.com/insights/search/#q=loopt.com&cmpt=q http://www.google.com/insights/search/#q=loopt.com&cmpt=... ) and yet people still got rich off of it. Product + Hype -> Big Exit is starting to seem like a perfectly legitimate business plan nowadays.
- webwright 15y ago
  I think calling this a "buddy exit" isn't really fair. Same with Hunch. That's like calling Next selling to Apple a "buddy exit". If Square went south, what kind of exit could they command based on Jack and his team? If Facebook was dying, what would Zuck and his team be worth? Sam and Chris are both brilliant guys and great BRANDS. Not Steve Jobs great-- but great nonetheless. Guys like this attract A-players and attract PR. Could Sam and his group have $43M in impact for the buyer? Surely. Listen, success is just a big multiplication formula. If your "leadership brand" number is high enough, you just about can't lose. But that holds true for any other number in the formula (product awesomeness, timing, marketing, business model, etc).
  - cft 15y ago
    Blogger was sold to Google for $5mm, not as buddy exit, but as a regular exit. I guess Loopt has eight times more potential.
    - blasterford 15y ago
      And that's why they're shutting it down!
  - anon808 15y ago
    "Could Sam and his group have $43M in impact for the buyer?" what do you mean by impact? how can this even be measured? "If your "leadership brand" number is high enough, you just about can't lose. " again, what does leadership brand mean? And what does it have to do with building a business that earns money/makes profit (revenue - expenses). Just because something/someone has market or exchange value, doesn't mean they have use value. If the goal is to sucker some large corporation out of a small chunk of cash (small for the large corp) be upfront about it. But saying there's some higher form of value that 'brands' bring that has nothing to do with building profitable businesses is disingenuous. Steve Jobs built companies that earned money (from business operations, not financial market operations). HUGE difference.
gojomo 15y ago
If the $17 million previously raised bought half or less of the outstanding equity, then the VCs (depending also on other preferences) might only have a claim on about ((43.4 total - 9.8 retention pool)*50%=) $16.8 million of the deal proceeds. So this might be a largely-sideways exit for the venture investors. Still, many think location services can only pay off via connections with payments/coupons/promotions so the tie-up does make sense as more than just a favor between investment buddies.
- rksf 15y ago
  Typically, venture rounds are participating preferred securities (at least). So, the more likely scenario here is: 43.4 MM Sale Less: 9.8 Cash Retention Pool = 33.6 MM Available for Shareholders Less: 17MM Preferred to VCs (Face Value of VC Investment) = 16.6 MM (split among VCs, founders, employees) VC Participating Share: ~35% * 16.6 = ~5MM Available for Founders / Employees = 11MM Total to VCs = 17+5=22MM
  - ajju 15y ago
    >typically, venture rounds are participating preferred securities (at least) That is increasingly false for A rounds, at least. This 2 year old discussion talks about that, but from what I hear these days, any startup that doesn't "desperately" need money will not agree to participating preferred in the valley. http://www.quora.com/How-common-are-participating-preferred-stocks-in-the-startup-VC-world http://www.quora.com/How-common-are-participating-preferred-...
    - rksf 15y ago
      Yes, that is a good point. Some research suggests that today only ~35% of Valley Series A are part preferred(according to recent legal reports), but Crunchbase suggests that Loopt took series A in 2005, Series B in 2008 and Series C in 2010. Total capital raised (according to that post) was $32MM across 3 rounds. Not sure how much was primary or if any of it was taken out by later rounds, of course. Anyhow, I don't know for sure, but I suspect there were some protections around the securities, given the timing of the early rounds and the total amount invested. http://www.crunchbase.com/company/loopt http://www.crunchbase.com/company/loopt
randome3889 15y ago
You clearly don't understand VC or Private Equity very well. 15 mil is chump change for Sequoia. Sure they would rather not lose it but 43 million is not a "huge amount of cash" in the VC world. They probably just got back a 1x or 2x return and that is about it.
- rhizome 15y ago
  Which is why buddy exits are such a problem: there's so much money in the greater pool that they can hand out life-changing cash on a whim to people who might not deserve it as much as others. Sure, life isn't fair, but I'd rather people didn't pretend otherwise.
  - freshhawk 15y ago
    Fairness is less of a problem than VC's treating their investor money as a slush fund to dole out to their friends. Doesn't everyone know that it's "more about who you know that what you do"? Even on HN most people don't pretend otherwise unless it's the all too prevalent press releases and astroturfing posts/comments.
    - rhizome 15y ago
      No, everybody doesn't know. Why do you think the conventional wisdom doesn't reflect that it's a buddy game rather than a meritocracy? Why is the word "meritocracy" ever even mentioned? Is it just a red herring thrown out by successful people to keep the masses suffering?
      - freshhawk 15y ago
        I think we disagree on what the conventional wisdom is. I have never heard anyone successful talking about the state of things refer to a meritocracy actually existing. Lot's of comments about how some method is more of a meritocracy or closer to this hypothetical ideal. Talk to anyone about nearly any business and the advice is to make good connections. The "it's not what you know, it's who you know" is such an old saying that it's a cliche. It's "a saying". It's conventional wisdom. The aphorism "build a better mousetrap, and the world will beat a path to your door" has only been used, during my lifetime (30 years), as an example of naivete. You also need good design and marketing and the right connections. To me, this is the conventional wisdom. Nothing about money in the western world is a meritocracy, I honestly can't find anyone serious trying to say it is. Especially with all the number crunching lately concerned with the growing class divide in the US. Am I ignorant? Outside of some kind of Glenn Beck style "woooo America! Fuck Yeah!" pundit that have I completely missed a meme or school of thought that is claiming a meritocracy exists (even though that's objectively wrong)?
dwerew45234sdf 15y ago
Your answer seems correct. Moritz and Sequoia invested allot of money ($10 millions) over 10 years ago into Green Dot. 'Sequoia Capital owned about 30% of the company during its over $2 billion IPO last year.'[1] Needless to say Sequoia and Moritz have allot of power at Green Dot. Now if we ask ourselves if Loopt was not a Sequoia company, would Green Dot have paid that much money for Loopt's people and technology. They could of easy got a better deal somewhere else. However I think Sequoia needed to save face on Loopt. They needed to make sure it had an successful exit. The more successful company's in Sequoia portfolio the more investors are willing to invest in them right? [1]http://www.quora.com/Green-Dot-company/Why-did-Sequoia-invest-in-Greendot http://www.quora.com/Green-Dot-company/Why-did-Sequoia-inves... I don't know why PG is trying to hype this up. I see ycombinator becoming more and more like a old boys network. If your doing a startup don't get discouraged. The reason you should be doing it in the first place is cause you truely believe in the product and the business and not looking to flip your startup for quick cash.

shareme 15y ago

some backstory..beware personal opinion I had the opportunity to interview with Loopt sometime ago, right when they in fact did the name change to Loopt. My read than was that they in long term terms were going to fail as certain constraints to do things were not in their best interests...at that time it was Mobile Operator limits..tie-=ups Its a sad thing as current deal looks to be only based on patents values..not what Sam's team put into it..

nikcub 15y ago

raising debt to pay a dividend back to investors is more common than not amongst the LBO funds. it makes sense if you have a steady and decent income stream, it is a bit like drawing down on equity in your house in order to take a holiday, except the rates are much better (when people complain about this, I am not really sure what they want to be done about it) the VCs of silicon valley are very far away from the Wall St type of private equity (although they are becoming closer with the secondary markets now opened up - it used to be that your vc investors were in all the way until the exit) as for Sequoia, it is pretty well known that the top tier VCs look after their own. Look through the Sequoia history and you won't find very many outright failures, it is a reason why entrepreneurs choose to work with them. I very much doubt Moritz can 'make' Green Dot do the deal, but I am pretty sure he put it all together - it is more a testament to his/their dealmaking abilities than any leverage he would have as a minority shareholder and director in a public company.

phillmv 15y ago
>as for Sequoia, it is pretty well known that the top tier VCs look after their own. Look through the Sequoia history and you won't find very many outright failures, it is a reason why entrepreneurs choose to work with them. Oh, I just want people to stop pretending this is a meritocracy.
deleted 15y ago
[deleted]

adamtmca 15y ago

Planet Money also did a follow up on one of Bain's deals that went right. TL;DR Bain bought a company, levered it up, restructured it and successfully took it public. The company executives all got bonuses, Bain made a ton of money and the workers got to keep their jobs. The company is still running today.

majani 15y ago

Buddy exits like this one and the Hunch exit are very demoralising. They make startups look like some sort of game. As you indicated, Loopt was clearly dying ( http://www.google.com/insights/search/#q=loopt.com&cmpt=q http://www.google.com/insights/search/#q=loopt.com&cmpt=... ) and yet people still got rich off of it. Product + Hype -> Big Exit is starting to seem like a perfectly legitimate business plan nowadays.

webwright 15y ago
I think calling this a "buddy exit" isn't really fair. Same with Hunch. That's like calling Next selling to Apple a "buddy exit". If Square went south, what kind of exit could they command based on Jack and his team? If Facebook was dying, what would Zuck and his team be worth? Sam and Chris are both brilliant guys and great BRANDS. Not Steve Jobs great-- but great nonetheless. Guys like this attract A-players and attract PR. Could Sam and his group have $43M in impact for the buyer? Surely. Listen, success is just a big multiplication formula. If your "leadership brand" number is high enough, you just about can't lose. But that holds true for any other number in the formula (product awesomeness, timing, marketing, business model, etc).
- cft 15y ago
  Blogger was sold to Google for $5mm, not as buddy exit, but as a regular exit. I guess Loopt has eight times more potential.
  - blasterford 15y ago
    And that's why they're shutting it down!
- anon808 15y ago
  "Could Sam and his group have $43M in impact for the buyer?" what do you mean by impact? how can this even be measured? "If your "leadership brand" number is high enough, you just about can't lose. " again, what does leadership brand mean? And what does it have to do with building a business that earns money/makes profit (revenue - expenses). Just because something/someone has market or exchange value, doesn't mean they have use value. If the goal is to sucker some large corporation out of a small chunk of cash (small for the large corp) be upfront about it. But saying there's some higher form of value that 'brands' bring that has nothing to do with building profitable businesses is disingenuous. Steve Jobs built companies that earned money (from business operations, not financial market operations). HUGE difference.

gojomo 15y ago

If the $17 million previously raised bought half or less of the outstanding equity, then the VCs (depending also on other preferences) might only have a claim on about ((43.4 total - 9.8 retention pool)*50%=) $16.8 million of the deal proceeds. So this might be a largely-sideways exit for the venture investors. Still, many think location services can only pay off via connections with payments/coupons/promotions so the tie-up does make sense as more than just a favor between investment buddies.

rksf 15y ago
Typically, venture rounds are participating preferred securities (at least). So, the more likely scenario here is: 43.4 MM Sale Less: 9.8 Cash Retention Pool = 33.6 MM Available for Shareholders Less: 17MM Preferred to VCs (Face Value of VC Investment) = 16.6 MM (split among VCs, founders, employees) VC Participating Share: ~35% * 16.6 = ~5MM Available for Founders / Employees = 11MM Total to VCs = 17+5=22MM
- ajju 15y ago
  >typically, venture rounds are participating preferred securities (at least) That is increasingly false for A rounds, at least. This 2 year old discussion talks about that, but from what I hear these days, any startup that doesn't "desperately" need money will not agree to participating preferred in the valley. http://www.quora.com/How-common-are-participating-preferred-stocks-in-the-startup-VC-world http://www.quora.com/How-common-are-participating-preferred-...
  - rksf 15y ago
    Yes, that is a good point. Some research suggests that today only ~35% of Valley Series A are part preferred(according to recent legal reports), but Crunchbase suggests that Loopt took series A in 2005, Series B in 2008 and Series C in 2010. Total capital raised (according to that post) was $32MM across 3 rounds. Not sure how much was primary or if any of it was taken out by later rounds, of course. Anyhow, I don't know for sure, but I suspect there were some protections around the securities, given the timing of the early rounds and the total amount invested. http://www.crunchbase.com/company/loopt http://www.crunchbase.com/company/loopt

randome3889 15y ago

You clearly don't understand VC or Private Equity very well. 15 mil is chump change for Sequoia. Sure they would rather not lose it but 43 million is not a "huge amount of cash" in the VC world. They probably just got back a 1x or 2x return and that is about it.

rhizome 15y ago
Which is why buddy exits are such a problem: there's so much money in the greater pool that they can hand out life-changing cash on a whim to people who might not deserve it as much as others. Sure, life isn't fair, but I'd rather people didn't pretend otherwise.
- freshhawk 15y ago
  Fairness is less of a problem than VC's treating their investor money as a slush fund to dole out to their friends. Doesn't everyone know that it's "more about who you know that what you do"? Even on HN most people don't pretend otherwise unless it's the all too prevalent press releases and astroturfing posts/comments.
  - rhizome 15y ago
    No, everybody doesn't know. Why do you think the conventional wisdom doesn't reflect that it's a buddy game rather than a meritocracy? Why is the word "meritocracy" ever even mentioned? Is it just a red herring thrown out by successful people to keep the masses suffering?
    - freshhawk 15y ago
      I think we disagree on what the conventional wisdom is. I have never heard anyone successful talking about the state of things refer to a meritocracy actually existing. Lot's of comments about how some method is more of a meritocracy or closer to this hypothetical ideal. Talk to anyone about nearly any business and the advice is to make good connections. The "it's not what you know, it's who you know" is such an old saying that it's a cliche. It's "a saying". It's conventional wisdom. The aphorism "build a better mousetrap, and the world will beat a path to your door" has only been used, during my lifetime (30 years), as an example of naivete. You also need good design and marketing and the right connections. To me, this is the conventional wisdom. Nothing about money in the western world is a meritocracy, I honestly can't find anyone serious trying to say it is. Especially with all the number crunching lately concerned with the growing class divide in the US. Am I ignorant? Outside of some kind of Glenn Beck style "woooo America! Fuck Yeah!" pundit that have I completely missed a meme or school of thought that is claiming a meritocracy exists (even though that's objectively wrong)?

dwerew45234sdf 15y ago

Your answer seems correct. Moritz and Sequoia invested allot of money ($10 millions) over 10 years ago into Green Dot. 'Sequoia Capital owned about 30% of the company during its over $2 billion IPO last year.'[1] Needless to say Sequoia and Moritz have allot of power at Green Dot. Now if we ask ourselves if Loopt was not a Sequoia company, would Green Dot have paid that much money for Loopt's people and technology. They could of easy got a better deal somewhere else. However I think Sequoia needed to save face on Loopt. They needed to make sure it had an successful exit. The more successful company's in Sequoia portfolio the more investors are willing to invest in them right? [1]http://www.quora.com/Green-Dot-company/Why-did-Sequoia-invest-in-Greendot http://www.quora.com/Green-Dot-company/Why-did-Sequoia-inves... I don't know why PG is trying to hype this up. I see ycombinator becoming more and more like a old boys network. If your doing a startup don't get discouraged. The reason you should be doing it in the first place is cause you truely believe in the product and the business and not looking to flip your startup for quick cash.