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October 9, 2006

Sequoia could take $480 million from Google/YouTube deal

Michael Arrington

46 comments »

Update: The deal was just announced; Google has purchased YouTube for $1.65 billion - all in stock.

The Wall St. Journal (subscription required) was among several sources this morning who reported that an announcement between Google and YouTube could come later today. The WSJ also confirmed an estimate that Sequoia Capital holds roughly 30% of YouTube, something we had previousy speculated on.

One source close to YouTube tells us that founders Chad Hurley, Steve Chen, and Jawed Karim each stand to make between $100 and $200 million from the deal. How much will Sequoia take?

Sequoia was among YouTube’s first funders, providing $11.5 million in two rounds. When $25 million more was rumored to have come from parties unknown this April, Michael Arrington wrote that Sequoia likely did whatever it could to maintain it’s equity share in the company. He estimated that share was between 25% and 30%.

What does this mean? If Sequoia put in $11.5 million for 30% of the company, and if in fact YouTube is being acquired for $1.6 billion then Sequoia’s stake translates into approximately $480 million (subject to a slight adjustment upwards if Sequoia had what is known as participating preferred stock). That’s a multiple of more than 41 times what was invested in a company founded in February 2005. It may not upend the recent argument that the VC model is broken, that there are few huge exists available and not much else, but it’s certainly interesting to consider.

These numbers beg comparison with Sequoia’s investment in Google. According to Bill Burnham’s respected analysis last summer of Sequoia’s take from the Google IPO the fund turned a $12.5 million investment in 1999 for 10% equity into roughly $4.7 billion. That was at much lower stock price at IPO; the stock initially sold at $85 per share, today it’s up to $430 per share on a $131 billion market cap.

So Sequoia won’t make a Google-like return on their YouTube investment. But a 41x return on an investment made a year ago isn’t something to sneeze at, either.

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This entry was posted on Monday, October 9th, 2006 at 12:56 pm and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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Comments

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  1. Wil Schroter

    October 9th, 2006 at 1:03 pm

    They deserve every penny of the deal (both Sequoia and the founders). This is what startup companies and investments are all about.

    Congrats to everyone involved on a job well done.

  2. Steve M.

    October 9th, 2006 at 1:12 pm

    . . . and the new ad revenue options owning YouTube present for Google makes for a nice income diversification from their dangerous 95%+ reliance on paid search . . . just as the PPC 2.0 paid match ad platform detailed at MatchTo.com is about to rock their world . . .

  3. FRANCK AHO

    October 9th, 2006 at 1:15 pm

    Its done..the deal has just been announced!

  4. Guk

    October 9th, 2006 at 1:20 pm

    OMG!!!

  5. Revolution is being broadcast on YouTube

    October 9th, 2006 at 1:23 pm

    Yep, done deal. $1.65 billion, says the NY Times flashing bulletin on its website.

    Wow, how many of the 60 employees at YouTube are going to be instant millionaires?

    Congrats all around!

  6. Armond

    October 9th, 2006 at 1:27 pm

    It is over with.

    Google To Acquire YouTube for $1.65 Billion in Stock

  7. Webomatica

    October 9th, 2006 at 1:27 pm

    I would bet the majority are instant millionaires (or multimillionaires) now. Not bad for a year’s worth of work at a startup.

  8. Janson

    October 9th, 2006 at 1:31 pm

    YES! An AWESOME DEAL!

  9. Farhad

    October 9th, 2006 at 1:36 pm

    I wonder how Google is going to make $1.65 billion out of youtube in couple of years! Any ideas?

  10. Jeff B

    October 9th, 2006 at 1:50 pm

    I don’t understand why the founders only stand to make 100-200 million apiece. Add Sequoia’s 480 million and that still leaves about 770 million. Figure the staff takes another 100 million (1.5 million apiece?). Still leave a very large chunk of change. Who gets that?

  11. Webomatica

    October 9th, 2006 at 1:58 pm

    Jeff there’s some kind of “rule of three” 1/3 goes to venture capital, 1/3 to the founders, 1/3 divided among the workers of which there are supposedly 58 (60 - the 2 founders). It wouldn’t exactly be divided equally among the remaining people depending on when they signed on and how many options, but according to this really general math the average result is about 13 million worth of Google stock apiece.

    So some of those rank and file employees are going to be pretty stoked to say the least. Highly likely everyone got a at least a million if not much more.

  12. Franck Poisson

    October 9th, 2006 at 3:59 pm

    All in stock…well done Omid :)

    THE thing is that now, this huge inventory will help to deliver more adsense’s clicks and then more revenue for Google and then will help the stock to growth 10% over the next few days.

  13. Joseph Hunkins

    October 9th, 2006 at 4:35 pm

    The gigantic payday is very interesting if employees only wind up with 1-2 million, though I’m beginning to understand that the only huge winners in these deals - e.g. even in the Google or Yahoo IPOs, -are the very top tier and the VC firms (who arguably deserve a huge multiple since they lose it all on many deals). Reminds one of pro sports where only a handful are big money winners in an ocean of contenders.

  14. Daniel Haran

    October 9th, 2006 at 7:18 pm

    So, how much should I be expecting when the startup I’m working for gets bought? :)

  15. alan

    October 9th, 2006 at 11:20 pm

    I hear the trampling hooves of the VC herd as they all try to fund the Next YouTube.

  16. Christian Libor

    October 10th, 2006 at 7:03 am

    If the VC ensure, that YouTube is aquired by a previously floated and listed startup, i.e. google, its like an emergency christening of the just born child by their parents. They seem to be not sure, the little YouTube survives otherwise, the deal is anyway fully paid by others, the google shareholders. Although the goodwill of this aquisition is just above one billion, compared to the mega-billions googles stock is worth, I will take some weeks or month before the the goodwill of the investors in tech-stock ERODE, including google themselves. If I were a VC 7 owner of google, my investment would be hedged.

  17. Christian Libor

    October 10th, 2006 at 7:04 am

    If the VC ensure, that YouTube is aquired by a previously floated and listed startup, i.e. google, its like an emergency christening of the just born child by their parents. They seem to be not sure, the little YouTube survives the big world. Anyway, the deal is fully paid by others, i.e. the google shareholders. Although the goodwill of this aquisition is just above one billion, compared to the mega-billions googles stock is worth, I will take some weeks or month before the the goodwill of the investors in tech-stock ERODE, including google themselves. BE AWARE, if I were a VC / owner of google, my investment would be hedged.

  18. Aibek Esengulov

    October 11th, 2006 at 4:14 am

    finally the deal is over…now we continue with a normal flow of events

  19. olivier2point0

    October 12th, 2006 at 2:25 am

    “So Sequoia won’t make a Google-like return on their YouTube investment.”
    What about the time factor ? Sequoia has done a x41 in less than 1 year… when they had to wait wait 5 years for the IPO of Google. Good sprint isn’t it? Web2.0’s booster effect?

  20. fstar

    March 8th, 2007 at 5:43 pm

    even the janitor at youtube is gona be a millionaire hahah

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