I will preface this by saying I know NOTHING about the actual deal between Yahoo and del.icio.us. Om Malik’s posting, in which he speculated about the buyout price, set me thinking about the various scenarios for employees in this buyout. You may recall a couple of weeks ago I wrote about participating vs preferred shares, and how they could impact employee stockholders and founders at exit, especially in the case of a small exit. If the numbers are as Om speculates, then this seemed like a perfect opportunity to illustrate that impact.
So, for the sake of argument we are going to assume that the cap structure of the company is 25% VC owned (as Om speculates), 15% for the employee stock option pool (a common number), and 60% founders stake. We will treat the 1.5 million investment in April as the sole investment.
If the VC owns common stock, as the employees and founders do, this is what the exit scenario looks like at $5, $10 and $15 million.
| Exit Price |
$ 5,000,000 |
|
$10,000,000 |
|
$15,000,000 |
|
| Founders |
$ 3,000,000 |
60% |
$ 6,000,000 |
60% |
$ 9,000,000 |
60% |
| Employees |
$ 750,000 |
15% |
$ 1,500,000 |
15% |
$ 2,250,000 |
15% |
| VCs |
$ 1,250,000 |
25% |
$ 2,500,000 |
25% |
$ 3,750,000 |
25% |
If, however, the VC owns preferred stock, with a 1 time liquidation preference, this is the exit scenario. You can see the effect of the preferred stock. It puts a floor on the VC’s risk.
| Exit Price |
$ 5,000,000 |
|
$10,000,000 |
|
$15,000,000 |
|
| Founders |
$ 2,800,000 |
56% |
$ 6,000,000 |
60% |
$ 9,000,000 |
60% |
| Employees |
$ 700,000 |
14% |
$ 1,500,000 |
15% |
$ 2,250,000 |
15% |
| VCs |
$ 1,500,000 |
30% |
$ 2,500,000 |
25% |
$ 3,750,000 |
25% |
If that stock is participating preferred stock (a very common scenario) with a 1 time liquidation preference, a significant uptick in the VC takehome occurs.
| Exit Price |
$ 5,000,000 |
|
$10,000,000 |
|
$15,000,000 |
|
| Founders |
$ 2,100,000 |
42% |
$ 5,100,000 |
51% |
$ 8,100,000 |
54% |
| Employees |
$ 525,000 |
11% |
$ 1,275,000 |
13% |
$ 2,025,000 |
14% |
| VCs |
$ 2,375,000 |
48% |
$ 3,625,000 |
36% |
$ 4,875,000 |
33% |
And finally, if the VC is very greedy, and wants a 2x liquidation preference, plus participation, there’s a dramatic difference.
| Exit Price |
$ 5,000,000 |
|
$10,000,000 |
|
$15,000,000 |
|
| Founders |
$ 1,200,000 |
24% |
$ 4,200,000 |
42% |
$ 7,200,000 |
48% |
| Employees |
$ 300,000 |
6% |
$ 1,050,000 |
11% |
$ 1,800,000 |
12% |
| VCs |
$ 3,500,000 |
70% |
$ 4,750,000 |
48% |
$ 6,000,000 |
40% |
Again, I don’t know what the structure and terms of the del.icio.us / Yahoo! deal was, so this is all illustrative. As Om says "I am speculating here, and have no information. So treat it like that…. simple speculation". Per my earlier point, though, most exits aren’t home runs, and the impact of liquidation preferences is felt most acutely on a small exit. It’s prudent to plan for the singles and doubles rather than just the home run.
2005-12-09 5:37 pm | No Comments »
Tags: Tech and Business, del.icio.us, yahoo
Well, if you needed validation of the value of the tagging phenomenon, you got it today. Yahoo!’s second big purchase, del.icio.us, in the tagging space clearly says that Yahoo! believes tags are a valuable asset.
I don’t disagree.
Today, tags might be the ultimate sticky asset. Your tags are a reflection of your values, your thinking, your mindset. Shared tags reflect the collective interests of a community. Tags and profile, together could used as contextual triggers for advertising driving much more precisely targeted delivery than is possible today. If, as the Web 2.0 advocates suggest, data is the new platform, then Yahoo! just bought a core platform asset.
Tags: validated!
The other big validation that Yahoo!’s purchase of del.icio.us provides is the value of just going and doing something. Rick Segal wrote, November 27, that successful products get shipped. Just Ship The Damn Thing (JSTDT)! Don’t try to boil the ocean. Josh Schacter had a dream, and exploited the power of the web to ship early, and ship often.
Shipping: validated!
Next up, look for shared tags across Flickr and del.icio.us. Look for tag driven advertising.
Web 2.0: validated!
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Tags: Tech and Business, del.icio.us, tagging, tags, web 2.0, Yahoo
I had lunch with Peter Childs today at Sushi Ebi on River Road. We were sketching out how to run a BarCamp Ottawa event — the types of participants, numbers, location and so on. It looks like it will be a late April event, simply because I am slammed until sometime in March. If you’re interested in participating, or helping to organize, head over to the BarCampOttawa wiki and add your name to the list.
Many thanks to David Crow for his encouragement, guidance, and offer to help organize. David, you’re a prince among men :)
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Tags: Canada, Tech and Business, barcamp, ottawa, torcamp
Aswath Rao has written recently about the topic of "IP Communications". In Graduating from 9 out of 9 to Applause, he writes about David Beckemeyer’s win with PhoneGnome, and then goes on to assert that the SlingBox is also an IP Communications device. And, in What is IP Communications? he expands on this theme, defining IP Communications as:
…two or more end-points exchange data having the following properties:
- An identification mechanism which can be used to authenticate users and also can be used to authorize the set of other users who can be contacted. The authorization rule can be static or dynamic (Relevance Engine anyone?); it can be application specific.
- An efficient way to overcome the NAT/FW boundaries without violating the security policies in place.
- A set of application specific data generator that is used to encode/decode the data.
I asked Aswath privately about how this differed from the general operation of the internet — TCP/IP traffic, various encoding mechanisms, and a directory. Specifically, Aswath is advocating
-
ICE for firewall traversal. ICE solves the problem of traversing a symmetric NAT, which neither STUN nor TURN do.
-
An open directory architecture — outside the walled gardens of the telecoms. This is very much in line with the
Voice 2.0 vision.
I agree with his viewpoint. Ubiquitous communications networks can’t be established until a universal directory scheme exists, and the firewall problems are overcome. Application level peering also has to be present. But that’s a topic for another post.
| 1 Comment »
Tags: Tech and Business, IP Communicatinos, Rao, Voice 2.0, VoIP
Yesterday Paul Martin’s Liberals made campaign headlines with a plan to ban handguns in Canada. The Jane-Finch neighborhood in Toronto has been the target of a series of shootings recently, and the issue of gun control plays well to Canadians.
I grabbed a couple of numbers out of a very large list of gun statistics published in the Citizen this morning:
The highest concentration of gun violence is amongst gangs. 50 out of the 70 gang murders last year used guns, and 32 of those murders were carried out with hand guns.
In the best case, assuming that the homicides committed with a handgun would never have occurred in any other way, 112 lives might be saved by the Liberal ban. Mr. Martin is proposing to spend $590 million dollars to accomplish this.
Wouldn’t that money be better spent on the root cause of this violence? Rebuilding the ghettos of Toronto? Better policing at the border? Programs to target organized crime?
The facts are that Canada doesn’t have a gun violence problem. The UK, which has sweeping bans on guns of all kinds, experienced 9974 gun related homicides in 2002 — a rate close to 125 deaths per million people annually. Here in Canada, we experience about 5 deaths per million.
The gun registry we have today is doing it’s job. There’s no need for an outright ban on handguns. The existing restrictions work just fine.
The people who’s children are dying on the streets of Toronto are being used as a campaign prop by the Liberals. What an outrageous and cynical act!
| 9 Comments »
Tags: Canada
