The Zappos deal is widely viewed as a win-win-win. Zappos CEO Tony Hsieh gets to stay in charge with deeper pockets to keep building the company for the long term. Amazon expands its ecommerce dominance by snapping up the one company online shoppers may love more than Amazon itself. And Sequoia Capital gets to lock in a near-$1 billion win at a time when the rest of the venture industry is on the ropes.
But there is one big loser in all of this: Draper Richards. Sources close to Zappos tell us that Draper Richards– a firm that is frequently listed as a Zappos investor– actually holds no shares in the company. They lent Zappos about $250,000 in its early days, and when the dot com bubble burst demanded repayment. Zappos was strapped for cash, so they tried to convince Draper Richards to take stock at a discounted conversion rate instead, but the firm insisted on loan repayment. (Draper Richards confirmed they were only a lender, not an equity investor.)
I don’t have enough detail to know exactly what they would have netted today, but our source says they would have been Zappos’ largest– and no doubt happiest– shareholder. Sometimes it’s the deals a firm makes– or doesn’t make– in a crash that matter most.
i need to buy some shares … man …
Me too!
Talk about missing out.
Hindsight is 20/20, but considering what happened to other much ballyhooed ecommerce dotcoms, I don’t necessarily blame Draper Richards.
Consider that Cyberian Outpost (outpost.com) was once valued at $60/share, and was ultimately sold for $0.25/share (that’s right, twenty-five cents) to Fry’s Electronics.
Yes, Zappos isn’t Cyberian Outpost, but when a bubble bursts on an entire industry, we shouldn’t knock creditors for being nervous.
I second that.
Ron, the ‘third founder’ of Apple, sold his stake of the company for a few hundred dollars, ultimately missing out on billions of dollars.
Still, he made “the best decision available at that time.”
What also needs to be factored into consideration: what Draper Richards did with that $250,000. If they invested money in some other company like, say, Apple or Google, then it was also a smart decision.
Agreed, the co. made a business decision at that point in time, as concepts like Zappos could just as easily have crash and burned. The proverbial crystal ball would of course always be great to have, and please sell me one if anyone has a 5-9’s working one.
So will Jeff Bezos now have the power to take back my shoes from my closet whenever he feels like?
LOL. if only there is a LIKE button. I will LIKE this comment.
i had the same reaction, was looking for the LIKE button.
Well, he does have a Twitter name. I RT’ed it
I would LIKE a LIKE button.
I like that . Imagine if it were true.
Though Ron Conway gets all the press, Banister shows again why he’s the real #1. Talk about a string of unbelievable successes…
Draper just got pwned.
Well, if Draper made the choice to do that why is this even news? It’s not as if they were cheated or offered a second class of shares.
Did anyone notice the LinkExchange/Tellme mafia connection to all the TC news today? 3 of the big stories today are all good buds:
Tony Hsieh, Zappos – (LinkExchange)
Alfred Lin, Zappos – (LinkExchange / Tellme)
Hadi Partovi, iLike – (Tellme)
Ali Partovi, iLike – (LinkExchange)
Jonathan Katzman, Xoopit – (Tellme)
Good for those guys. Quite a day for them.
Sooo… party at the TC headquarters. I’ll bring vino.
what is LinkExchange ?
Yeah, dotcom stocks after the crash were the best investment ever! Anyone who decided they wanted cash instead of stock or options was the real loser!
That said, anyone wanna buy my eToys and Pets.com shares? I got ‘em around here someplace…
I didn’t even know that Amazon bought Zappos. That’s definitely one .com worth paying a whole lot of money for. They dominate the online shoe market. As for Draper & others, I feel bad for these poor guys who end up missing out on a big payday and then get ridiculed by the media. They’re mad enough at themselves already, they don’t need the shame too.
Bill Draper is the nicest person I ever met. If he made money on Zappos, I bet he would have given all his gains to charity anyway.
Apparently, I am one of the few that is not thrilled with this acquisition. Zappos was the SINGLE organization capable of disrupting AMZN, and now the potential for Zappos to ‘fall in line’ is very great. We need competition. Anyone know of a private company looking to disrupt the status quo in ecommerce?
Well, if you are looking for competition, there is always Rakuten, starting to flex its big samurai muscles…
http://www.tech...mazon-globally/
are you serious? They sell shoes. Amazon sells… everything else.
MAJOR FAIL
Just for a piss take post. Can the DOJ look into this acquisition and see if it violates the anti-trust? If not , then why not? Since the anti-trust is primarily driven by government bureaucrats who has nothing useful to do (including their useless multi-millionaire lawyers – who don’t produce for the society except leeching of taxpayers with their high fees in order to get involved in breaking up companies who don’t violate others rights).
Is there any other online shoe retailers out there that might whinge and complain to DOJ about this?
One can see how ridiculous this anti-trust law thing is. Since it is non-object & arbitrary, bureaucrats can made up the charges as they see fit, because it is not clearly defined in the law.
Hehe, I expect that there will be some consumer advocates and state-worshipers who will post after this message and try to put a counter-argument in support of the consumers. Now before you do that, you must answer a simple question?
Does the consumer have a right to a producer’s products (ie, dictating to someone else’s properties)?
Oops , I meant to say , non-objective & & arbitrary…
what kind of loser firm cares about $250k?
FAIL!
$250K is $250K, good investors care about all money. HardyHar is the loser for making such a stupid comment.
tony is a damned ROCK STAR – kudos to him and the whole team…i believe retention is unusually high at zappos and so hopefully the employees all did well in this transaction…
Post doesn’t say whether or not Zappos ever paid the debt (I’m assuming they did…)
Congrats to Tony and the whole Zappos team. Amazon just got bigger and better
Ouch… thanks for sharing this!
wouldn’t the biggest loser be amazon? for purchasing a unprofitable company at such price tag?
good one.
actually prefer Gotham City Shoes – cool shoes, much cheaper prices + good service too http://www.goth...mcityonline.com (although their site is really flipping slow right now)
just curious is shoe market really worth paying allmost $1b…i never bought shoes online, and wonder who buys them so many shoes!!?
For the life of me I still don’t understand how anyone can buy shoes on the Internet.
I mean, it’s hard enough when you can try them on! It takes forever to find the right pair, especially in the case of Mrs Gadomski.
I agree, I wouldn’t. But may be, they try first in the mall and figure what they want. Then shop around for deals on the internet.
boohoo
the venture industry is not on the ropes and certainly sequoia isn’t. there are some VC firms that are on the ropes for sure, but not the whole industry
Providing debt and providing equity are different businesses. Debt bears lower risks and (usually, in theory) gets lower returns. Picking sides a posteriori is too easy.
Zappos? Possibly more loved than Amazon? Who are they again?
So that makes Draper Roberts a *loser*? Really?
Sounds like they may have *missed out on a potential oppty*– we all have plenty woulda shouldas– but firms actually *lose* cash on investments that don’t succeed, often in the majority of investments. It’s the nature of the model.
That doesn’t sound like what happened here. Right?
hmm. That Draper Richards transaction sounds fishy. They are a VC. I have to believe that they wrote that as a convertible note (loan that transfers to equity stake after time or other investment). If they missed this transaction as a potential outcome of the terms or if they just took plain debt then shame on them. This is pretty 101stuff for a VC.
Bet Mr. Richards is kicking himself now. Karma can be a bitch.
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