The Skype Exit: This is why we have VC!

For the second time in its history, Skype has made it’s venture investors a bundle of cash! The 1st time around, funds like Index and Bessemer scored big when eBay bought it. Now a group investors including the Valley’s new superstar VC fund Andreessen Horowitz has made another killing with Microsoft buying the company for $8.5B.

As I’ve said before, for better or worse, venture capital is about the extremes, not the averages. A few stellar exits make a fund. This is oversimplifying things since eBay retained a minority stake and there was some debt, but Andreessen Horowitz (AH) just made over 3x their money in under 2 years. 3x is not a huge multiple by VC standards, but this was a big ($50M) bet. ┬áSo, their LPs might have just made $ 123M and the partners at the fund might have just made about $30M. All good!

If you wonder why VCs keep saying ‘no’ it’s because they’re holding out for deals that can produce these types of home runs. Now, it’s true this was more of a private equity deal than VC, but home runs can make franchises and enable VC funds to raise capital for many funds in the future.

One thing I like about this is how gutsy this investment was. AH invested a pretty sizable portion of their fund into Skype at a $ 2.75B valuation. Many pundits felt this was fully valued at the time. It was hard to tell if the investors overpaid. But AH and their coinvestors plowed ahead because Skype is one of those rare properties with huge adoption, engagement and room to grow.

The two main partners at that fund are absolute rock stars and are breaking the rules. Ben’s blog is literally the #1 blog you should read as a startup CEO. ┬áThese guys do seed deals all the way up to huge private equity deals. Perhaps this success will encourage other funds to toss aside their internal rules about minimum deal size and how much capital they have to ‘put to work’. Just back great people and get into the best companies. Period.

So, congrats to everyone that was part of this deal. This is why we have VC. As I said to one of my colleagues today, the day we sell one of our companies for $8.5B (or some fraction thereof) will be one hell of a party!

  • While Andreessen Horowitz need to be commended for their investment the real winner here is Silver Lake. They had a 40% stake in Skype while AH only had 3%. Silver Lake has been making multiple billion dollar bets over the last couple of years on what they believed were undervalued tech properties. It appears that they were right and are going to make a killing on them.

    For all you Canadians, it is is worth noting that the next largest shareholder after Silver Lake was our very own Canadian Pension Plan (CPP). It might still be there for us when we retire after all!

    • Hey Kevin, yep for sure AH was a small player. I just like their chutzpah since they played a big role in pulling this together. Really happy to see a Canadian LP score big here.