Fred, not trying to be too schmaltzy, but it seems like you have a really different and unique view of working with entrepreneurs. Almost all of the VCs I've talked to are more like CMGI: only looking out for #1. Care less that the founder will end up with token ownership. No clue that building and incentivizing the right team is the key to success.
So just a point of encouragement: I'd do a VC deal with your firm any day of the week because of how you treat entrepreneurs. Of course, your main focus has to be generating a return for your fund, but you get it that the two are not mutually exclusive. That's rare, frankly.
fredwilson
· 8 months ago
My motto is be greedy for your career but never greedy on any one deal. I think the two are mutually exclusive
McLarty
· 8 months ago
My uncle always says "You have to leave something on the table, for the next guy"...
...words have done me nor him no harm, so far.
aaronklein
· 8 months ago
That's the part of greed that is good. Well put.
Jon Wu
· 8 months ago
Why was Geocities a good investment? It was never profitable and was eventually shut down.
grishick
· 8 months ago
Geocities is the prototype of today's social networks and blogging websites. It could have been hugely successful, had Yahoo! managed it right.
fredwilson
· 8 months ago
It should have been massively profitable
It generated huge pageviews and was not expensive to operate
Michael Parekh
· 8 months ago
Great trip down memory lane, Fred. Both Geocities and Multex are good memories, replete with good lessons.
fredwilson
· 8 months ago
Indeed
I'm involved with isaak and his team again in a company called infongen
deancollins
· 8 months ago
Yes I thought the same thing.
It's funny how times change/look at twitter pre rev etc and how they are accepted.
I was at an event today where Albert Wenger said he pretty much wouldn't fund any "ad banner" only revenue companies....... Isn't that what Geocities was all about revenue wise?
Great story and highlights the use of case studies as terrific educational tools and thought pieces. There is so much context to the story that it provides a keen insight into how important people, timing, temperment, creativity and luck are in business.
It would be interesting to take that case study and distill it into several "rules" for business. I see many such useful observations. The cumulative impact is the difference between a single and a grand slam.
"America does business with its friends. If you want to go into business with somebody, make sure you CAN be friends."
fredwilson
· 8 months ago
Luck is certainly a big part of it
Marc
· 8 months ago
I learned somewhere else (fighting on a ring) that luck is what happen when you work hard, make the right decisions and implement well when the time as come. Then, sometimes, you can be lucky. But I am certain that you know that already :-)
fredwilson
· 8 months ago
Yes I do. But I also know that luck has played a big part in my career
mpreston
· 8 months ago
GeoCities brings back interesting memories. I was 14 at the time, and someone I know ended up posting a list of "top cute girls" at our middle school in Palo Alto on a GeoCities page. It took months for the administration to figure out what GeoCities was, but when they did, it was a big deal. A PTA meeting was called, and everyone was up in arms about this "Internet thing" and whether it was "bad for our kids." I think GeoCities was the first time people (even here in Palo Alto) started to really understand the inherent democratic power of the Interwebs.
Jerry
· 8 months ago
Nothing to correct buddy. Just adding that YOU taught me an enormous amount of things in that deal...from great ideas like the 500K option deal sweetner to the ethics of how to conduct oneself.
Folks who read Fred's blog should know from the above story what a brilliant and high integrity investor he is.
fredwilson
· 8 months ago
Well that's being modest Jerry but then as I said in the post, some things don't change
Jerry
· 8 months ago
It's worth noting all the positive responses to this post...it seems like people really benefit from hearing the details on stories like this. I think it's one of the things you do best in this blog.
David Semeria
· 8 months ago
The best part is Bill and David popping outside for a quick talk and then coming back and shaking hands with you both.
It's really heartening that both sides would accept a deal (at least in principle) and agree to it without the usual recourse to counsel.
I've always thought the business guys should do the deal first, and let the lawyers sort out the details later.
fredwilson
· 8 months ago
Well Bill is a lawyer and damned good one. He was also David's brother and an investor in the company. That's what you want in a lawyer I think
David Semeria
· 8 months ago
I've got nothing against lawyers - but it's the handshake that counts.
fredwilson
· 8 months ago
I'd like to do more of it but it takes a lot of inspiration to get me to do it. Shutting down geocities was plenty of inspiration
kidmercury
· 8 months ago
bad news always provides the best inspiration :)
fredwilson
· 8 months ago
Sadly that's true
Shafqat
· 8 months ago
Fantastic eulogy Fred - I think everyone in the business has fond memories of Geocities.
For me, that was the place where I first learned how to code ("HTM what?"), and believe it or not, the first website I ever saw graphically was also Geocities. I was on Lynx before that. It was also the first time I made money on the internet - I had a link to Tickets.com on my Hootie and Blowfish fan site. Yes, embarrassing but these are golden memories. Back in 1997, I was making a ton of money (for a teenager) from referrals.
That was then - now I'm building web businesses for a living, so I guess I owe it to Geocities for getting me hooked.
Eric
· 8 months ago
Great story Fred. Not surprising that you remember all of the details of such a big win. Wonder what the next 100x opportunity will look like.
fredwilson
· 8 months ago
I've got my eyes on a few suspects in our portfolio but I don't want to jinx them
RacerRick
· 8 months ago
Great story. What an amazing time.
David Semeria
· 8 months ago
An inspirational post Fred, well done.
DonRyan
· 8 months ago
What a terrific story Fred. Thanks for sharing it.
dherman76
· 8 months ago
Thank you for sharing Fred. Love these types of stories.
dorianbenkoil
· 8 months ago
Great post. Any chance you'd want to share some of those cap tables or investment memos?
fredwilson
· 8 months ago
I thought about posting the initial cap table but it felt a bit too private. Even after 13 years
Eric Marcoullier
· 8 months ago
Regardless, even this level of insight is wonderful. Thanks for writing the details up. I wish there were more of these case studies available.
Sahar Sarid
· 8 months ago
"I learned a lot from that deal. I learned that the Internet is all about people expressing themselves on pages they own and control. I learned that a business deal made over dinner and a handshake can turn into hundreds of millions of dollars, I learned that good partners are worth every penny of returns you give up to get them, and I learned that selling too soon is not too painful as long as you don't sell too much. And most of all I learned that you can make 100 times your investment every once in a while. And when you do, it's something special."
Well said, why Facebook, Myspace, and others are growing so fast.
Good read overall, thanks for sharing.
Sahar Sarid Co founder, Bido.com - Social Auction Platform
Andrew Payne
· 8 months ago
Great story!
I'm going to be a little bit unfair: I know you wrote this as an investment story, but it's also an example of a mind-set challenge in venture these days (e.g. sometimes a disproportionate focus on deal terms vs the work of creating a valuable company). I'm sure you didn't mean it that way; it would be great to hear the (equally detailed) story about building the business.
fredwilson
· 8 months ago
Well we will need david bohnett to tell that story. VCs have a front row seat but its the entrepreneurs who build companies
At best, the VC is a consigliere and a recruiter and a strategy advisor and investment banker
But we don't start and run businesses.
JLM
· 8 months ago
VCs are "enablers" --- and that's a good thang!
fredwilson
· 8 months ago
My wife tells me I do the same thing with my kids
Cayce Pollard
· 8 months ago
Surely the story is that the business didn't matter: it was just a question of a finding a greater fool (as economists call it).
fredwilson
· 8 months ago
Geocities was the beginning of social and media and could have been myspace, facebook, and a host of other companies if it was managed properly
I'm not suggesting it was worth $3.5bn back then.
But the greater fool was the company that didn't understand what it was buying
jonknight
· 8 months ago
Well said.
Greg Solovyev
· 8 months ago
It seems to be a trend with them. Somehow they manage to buy many great startups with great ideas and products, but then these startups stop evolving. Flickr's falling behind Picasa, Zimbra isn't beating MS Exchange. By the time, Y! Mail switched to Oddpost's new interface, GMail has already out of beta. Inktomi, Overture, Altavista, and Alltheweb altogether never caught up with Google. Anyone remember Bloomba? Will IndexTools beat Google analytics? Where's Maven Networks now? Couldn't HotJobs combined with Geocities and yahoo profiles be what LinkedIn is now? Just sad...
leeschneider
· 8 months ago
Great article Fred. One of the best I've read on your blog. I always loved when people would find one of my Geocities sites years after I had created it and thought it to be dead. Always gave me a good chuckle. And congrats on the deal (although nearly 10 years too late).
Jonathan Glick
· 8 months ago
Fantastic story, Fred. Very helpful.
john bolger
· 8 months ago
yahoo announced the news yesterday. in retrospect, it's clear this was a poor decision. i won't say they got swindled but geocities offered very little value - surely nothing near the price paid. i see no reason to applaud that deal. it represented the excess of the dotcom days. hopefully, we're a bit saner nowadays. maybe
fredwilson
· 8 months ago
See my comment to the prior email. Wrong price, right idea, terrible management
ErikSchwartz
· 8 months ago
From the acquiring companies side what I learned in this deal was:
Buying reach is a fool's game.
Some inventory is really hard monetize.
Making big acquisitions on fuzzy integration plans is fraught with peril.
fredwilson
· 8 months ago
When yahoo did not work hard to keep tom post deal I knew it was time to sell all of my yahoo that I got from yoyodyne and geocities
One of the best moves I ever made.
Tom was and is a tremendous leader and exec and would have helped yahoo immensely at that time
He could have run yahoo better than tim, jeff, terry, or dan
ErikSchwartz
· 8 months ago
There was a lot of hubris at Y! then,
That, Geocities, and BCST were what let me know the whole thing was going to come crashing down.
Leaving Y! and selling all my stock (except one share, now split) at the end of 1999 was the best move I ever made.
Todd Wagner could have also helped Y! enormously.
Jack Barber
· 8 months ago
2 questions:
1. Are there any fiduciary issues associated with offering a 500k option "sweetener" like this to the founder? (fiduciary might not be the exact right term here but hopefully you'll know what I mean)
2. I guess prev investors + common is always vulnerable to getting screwed with each new round of financing. And they do get screwed unless they have leverage not to.
I understand David's in this case -- you needed him to do the deal, and at least for a time to continue to lead the company twds exit / success.
What was CMGI's leverage in this instance?
Jack Barber
· 8 months ago
re #2 above -- sorry I didn't read more carefully -- I assume their leverage was simply majority (or plurality) control...
fredwilson
· 8 months ago
They could block the deal
Soso Sazesh
· 8 months ago
This was really an insightful post. Thanks for sharing all that info.
jasonspalace
· 8 months ago
Great timing for the article considering that the internet today is in a similar era... things are about to BOOM!
Bennett
· 8 months ago
Your statement "it was the first rocket ship ride I had in the venture business and it will always have a special place in my head and heart" pretty much sums up my experience from the PR side. Along with FreeLoader, Geocities stands out as a landmark client in my career.
fredwilson
· 8 months ago
Freeloader was the launch rocket and we hit escape velocity with geocities
tanomsak
· 8 months ago
Great read, any very entertaining, Thanks for sharing
Jeff Hilimire
· 8 months ago
Love the history on Geocities, Fred. It was Geocities that originally got me into the internet and subsequently led me to create a digital agency back in 1998, which I successfully sold to a private equity group in March of 2008. And that led me to recently co-found a technology accelerator fund in Atlanta (Shotput Ventures) similar to YC.
So I have a lot of fond memories of Geocities and it certainly had a huge impact on my life. Glad to hear you were a part of that.
fredwilson
· 8 months ago
As were you. Geocities like blogging, disqus, twitter, etc was nothing more than the people who built stuff on it
Joe Lazarus
· 8 months ago
Great story. I never used Geocities, but it's sort of sad to me that it just faded away and is now gone for good. Most surprising to me was that Geocities still gets 11M uniques a month. That's a lot of traffic for a bunch of useless pages of animated gifs.
Vaibhav Domkundwar
· 8 months ago
Joe, I wonder what the cost of running Geocities was and why it could not have been put on a backburner - didn't look like they were developing it anyway. There's so much they could have done with that property. A MySpace for businesses perhaps.
Vaibhav Domkundwar
· 8 months ago
Great post, Fred and one of the best and most inspiring ones on this blog.
Laurent Kretz
· 8 months ago
Amazing post, so inspiring....
Amongst what you learned, anything you applied specifically to the other exits "from dozens of internet deals in 1998, 1999, and 2000" ?
fredwilson
· 8 months ago
I didn't really start applying most of these lessons until the early part of this decade.
1999 and 2000 were a blur unfortunately
Mike Su
· 8 months ago
Great post. Of course, with so many of your posts Fred, they get me thinking about some other tangential but related topics.
I'm trying to think of a major acquisition (+$1b) where the acquirer actually got real long term value out of it. And I can't. Small purchases of IP and technology seem to generally make sense. But the probability of a large (and by definition political) organization to absorb another major entity, understand their strategy, and weave it into the DNA of the new combined entity is slim to none. And yet our entire system is incentivized to make these deals happen time and time again. Everyone wins except the long term shareholder.
The acquiring company, usually a leader in a particular space, is under tremendous pressure to keep their revenue chart going up and to the right. It's so impossible to do this organically once you reach a certain scale. So they look to acquisitions to help paint the "story".
The acquiree must either aspire to become *that* company, where they are 10,000 people strong, public company under pressure to grow quarter by quarter, or they can cash out nicely and let someone else worry about it. If you're an entrepreneur, you really don't want to become *that* company, that's why you started a company in the first place.
So the acquirer buys a great up and coming company, the founders cash out, the acquirers can't hold onto the founders because they've made enough money and can't stand sticking around pushing power point slides and fighting turf wars. So the acquirer loses the few people in the company who actually understand the business. The stock price of the combined entity continue to rise for a few quarters, maybe even a few years, on the momentum of the existing product sets. But eventually 1~2 years down the line, the code gets bloated, only incremental features are added, nobody wants to be the one to take a big risk and jeopardize the existing revenue streams, so it kinda just chugs along. All the original talent from the startup have left since they've made some money, and hate working at a big company, and the culture they had is no longer there. So it goes until some other startup comes along and catches them sleeping. By then the acquired product has sat on a shelf for so long and is no longer sexy, and the stock plunges back down. CEO gets fired...so on and so forth. Entrepreneur is sad because their baby got butchered, and drowns their sorrows in a gulfstream jet on a trip to France. Does the story go any other way?
Given the financial incentives that are currently in place for all parties involved, there is little reason to do this otherwise. So it all makes sense on a micro, 2-5 year horizon level for everyone involved. But for someone who wants to build something of value that lasts for a generation, it makes zero sense. But does anyone really do that anymore? Would anyone even be able to keep their job in this environment if they set out to build something that lasts for a generation? This is such a fundamental problem that touches on so many aspects of how we got to where we are today as a country.
vadadean
· 8 months ago
It looks like the Google-YouTube deal will be a +$1BB deal with long term value to the acquirer. Further evidence of the management chasm between Google and Yahoo.
Mike Su
· 8 months ago
The jury is still out on the YT acquisition. GOOG is paying through the nose for bandwidth costs and it's not yet making a huge revenue impact relative to the purchase price. Time will tell.
However, what the YT acquisition has going for it is that it was a very young company, so it hardly had time to establish culture, one of the most difficult aspects of an acquisition that is often the most overlooked aspect.
Also, remember, circa 1999, Yahoo was Google. Before Larry and Sergey, it was Jerry and David (and of course before them was Bill and Paul). I'm rooting for Google to buck the trend, but it's a very very hard to focus on the long term when the CEO has to march off the plank and up to the speakerphone quarter after quarter and show results.
vadadean
· 8 months ago
Yep, the jury is still out. However, unlike Yahoo!, Google is very aware they are in the knowledge and organization business (nod to Jeff Jarvis). From this perch they are in the best position to harvest the attention value and community value within YouTube. I fully intend to help them.
fredwilson
· 8 months ago
Its part of the reason I want to see a secondary market emerge so companies can stay independent and still generate some liquidity for founders and investors
All your points are right and its a huge issue
But there are examples of where it works. Cisco, for example, has gotten huge returns on many of its big money acquisitions
Will
· 8 months ago
"But for someone who wants to build something of value that lasts for a generation, it makes zero sense. But does anyone really do that anymore? Would anyone even be able to keep their job in this environment if they set out to build something that lasts for a generation? "
I think Wikipedia will very likely last for generations, and it's a company designed to last for generations. It has over 2 million articles and continues to balloon with every waking moment. There are no serious competitors. I don't see another user-generated encyclopedia EVER coming along and knocking Wikipedia off its throne because it's lead is so magnanimous. I won't be even marginally surprised if Wikipedia is around in 2109 and still viewed as the preeminent source of reliable information.
That said, Wikipedia and Google may be the only two Internet companies with a high probably of lasting over 100 years, and perhaps that's sad.
If I was forced to pick a third Internet company with a chance of being around in 2019, I would pick Mahalo Answers for one simple reason. For whatever reason, people will always need to ask questions and get immediate answers from other real people. Yahoo Answers has been the market leader in the U.S. since it's inception, and Wiki Answers etc. have barely carved into it's market share. But Mahalo Answers will because it's the cleverest of these answer services by design. Once it overtakes Y! Answers, it could very likely retain its lead for generations and generations.
Nick ONeill
· 8 months ago
When's the book coming out? This surely makes for a great chapter in it!
joesunga
· 8 months ago
This was a great article. I love how you are so open with a lot of things and are willing to share it with the public. Thanks a lot for the insight. Cheers!
Ari Weinberg
· 8 months ago
Time to pull down my Geocities page. Hasn't been touched in 10 years.
JayR
· 8 months ago
That deal also holds a special place in my head and heart as well. It was the first investment where I represented Flatiron. It was all downhill after that ... ;-)
fredwilson
· 8 months ago
Your killing me Jay.
Prokofy
· 8 months ago
I desperately wanted to like and use Geocities and was so thrilled with it at first when it came out because I thought it was going to be *the* way to provide an outlet for comic strips I made and a club I had founded with other people making stories with the Sims. But it was so frustrating to try to get it to work, I eventually left it for tripod.com where the tools were loads easier to use. I kept my geocities page up forever because I associated it with an epic struggle to try to get a page to do something that failed for me but which had enormous amounts of time and energy in it. I can still see those little boxes before me now...
I agree Geocities was crossing a threshold into social media land. In the end, for me and groups I worked with, tripod and lycos plus zing (remember zing,com, unlimited photo storage for life?) simply were easier to use.
I am curious again about the glue that makes the people in these venture capitalist collectives stick together, i.e. what gets you to lay your money down next to the other guy's, sounds like you have to war an awful lot over the splits, sounds like very hard work.
Also, it's good that you're no longer associated in business with J.P. Morgan Chase, which these days runs what amounts to little more than a payday loan mill with their outrageous fees and practices.
pallian
· 8 months ago
I'm a web developer today thanks to Geocities. I wish I still had my first geocities webpage today.
Kevin Cimring
· 8 months ago
Hi Fred, jewels like this make your blog my #1read on the Internet. I agree with Nick O Neill who suggests you write a book.
I'm only sorry I never took your advice to buy Google at sub-$300 :)
Thanks for a consistently great blog - hugely valauable as I make my way through the start-up world here in Silicon Valley.
Kind regards Kevin
fredwilson
· 8 months ago
Thanks for the nice words Kevin.
Jonathan
· 8 months ago
great post. educational. even inspiring. i'll be share to visit you when/if i'm ready to pitch my company for funding.
Pang Chan Yip
· 8 months ago
Hi,
May i know if google's business model can be considered as Freemium? If not, may I know if there's any name to their business model?
Thanks!
iPosit
· 8 months ago
Awesome article, Fred! Love that you take the time to compose these blog posts. You're a true thought leader & pioneer regarding transparency & openness in business. I've been reading your blog for years & will continue to do so.
I'm not that familiar with Tom Evans and his previous companies, so I'll have to do some research there to learn more. Sounds like he's a very talented CEO as you speak very highly of him.
Also, I'd actually love to read a similar article like this, except charting your investment in Seth Godin's Yoyodyne. I find it interesting that you were involved in that one too.
Keep up the great work, Charlie
fredwilson
· 8 months ago
The yoyodyne story is a good one. I'll have to take some time to do that. There's a lot of lessons there too
Aruni
· 8 months ago
I enjoyed this post. These kinds of stories reinforce the relationship aspect of any business. No matter how much people try to automate things and how much we rely on virtual connections, there is no replacement for face to face, human to human connections to make things happen.
Steven Kane
· 8 months ago
i forgot that yahoo already owned a chunk of geocities before they acquired the company
hard to tell from your post, but looks like they owned 20% ?
if so, actual acquisition cost was $2.8 billion ($3.5 billion X 80%)?
fredwilson
· 8 months ago
I think it was 10%, Softbank and yahoo! Together owned something like 25%
Gianluca Dettori
· 8 months ago
Great post!! g.
Armand Aguillon
· 8 months ago
Great post Fred! I came across your article from a twitter link.
I work for a Private Equity company in Australia and although VC is a little different (but still a type of PE), the way you did the deals (over dinner and a handshake) was quite remarkable. And I believe a lot of deals were done that way back in the internet days... I'm not sure if deals are still done today like they used to (especially at these times).
Nevertheless, I enjoy your post and I have saved this site as one of my favorites. Thank you Fred.
fredwilson
· 8 months ago
Just to be clear, we did "paper over" the deal
George Nimeh
· 8 months ago
Great post Fred. Another beauty. The transparency and history make for a great read.
While I'm sure he'd say something like, "I got a lot of great experience and an ad partner for my new mag" I'm sure Jason Calacanis quietly burns from not getting any Geocities equity from his involvement in the deal. At the time, there were very few people who understood the players and the market. And you needed that info, which I'm sure was incredibly valuable in the process.
I know he's learned a ton about the VC/investment side of the biz since then (and has obviously done well as a result), but I can't help think that you knew what this young lad was contributing to the process, but you were more than happy not to have him reap any of the rewards.
Looking back, do you think that was fair?
@iboy
fredwilson
· 8 months ago
I believe we paid him for his time
Jason McCabe Calacanis
· 8 months ago
At the time Acme Ventures--aka Flatiron--was paying $1,000 to come in for lunch twice a month and talk about the internet. I was a 24 year old kid from Brooklyn starting up his own magazine, getting tons of attention, had a killer 3/4 black leather jacket, was going to all the right parties, eating at Nobu and was dating a Germany eight years my senior.
No one in New York City had it better than me as far as I could tell--no one.
I told everyone on the planet I read business plans for Flatiron Partners in order to get meetings, emails and subscriptions and advertisements for Silicon Alley Reporter. Also, the home run of Geocities forever burned in my mind the value of stock options... good lesson to learn at that age frankly.
I didn't grow up rich and I didn't even understand what venture capital was. Fred and Jerry explained to me what a limited party was, a term sheet, and even a business plan. They taught me the ropes even after I stopped reading business plans for them.
Additionally, Fred and Jerry have championed my cause for over a decade. Jerry gave me tons of advice on Weblogs, Inc. and Fred met with me for hours when I was coming up with the idea for Mahalo.com (he even angel invested which he didn't need to do and I didn't need to take since we were oversubscribed--but we did because we're friends and we've been in this so long together).
I'm certain they weren't throwing stock options at everyone helping them out so there are no hard feelings--in fact he opposite. Jerry and Fred gave me some of the my first critical chances.... which I took, resold, flipped and exaggerated into the career I've got now.
Fred's been an older brother to me for 15 years and I'd have a hard time thinking of anyone else who's gone to bat for me more times.
Also, I never have to the pick the up the check when we eat expensive sushi.
Finally, it's never too late. If Fred can't live with the guilt he can donate the 100 shares he would have given to me to some amazing cause of his choosing. :-)
Peace and love for the old skool,
jcal
fredwilson
· 8 months ago
That's 400 shares (two 2/1 splits) times $120, so it had better be a good cause Jason!
George Nimeh
· 8 months ago
Jason, an inspired reply and wonderful incentive for others to build strong and valuable relationships that endure. Everyone knows you always had a ton of drive, but determination alone never would have done it, imho. It was your ability to see the opportunity of instances like this and take 'em for all they were worth. And lucky for you Fred and Jerry weren't the type to pay you on the day and forget about you the next.
As for Fred, Jerry and the Flatiron crew, it certainly would seem that they got a very good deal at the time, but that they've also paid it back in more ways than cash or shares. Once again, their way of doing business should serve as a model in more ways than one.
Hat tip to all of you. Respect.
I'm inspired, once again. :-)
@iboy
lisa witz
· 8 months ago
I enjoyed your article. I was an employee at GeoCities during all this and it's so interesting to read about it from your perspective - I was sad, too, upon hearing that Yahoo is shutting it down but it's a great chapter in internet history.
fredwilson
· 8 months ago
What did you do at geocities?
Harry Lambert
· 8 months ago
Fred- You give me and colleagues too much credit here, and I can only echo Jerry's observations below ,and thank you guys again for the chance to work with you on this very interesting and most successful deal. I had been frustrated previously in another fund, when I had been unsuccessful in selling parners on investing in Multex,both when you had first done that deal at Euclid, and later.
GeoCities was a fasinating deal from many angles. David Bohnett was no doubt the Father of Community, and his passion for the deal jump-started and maintained the growth ride, wild for that era. He was, and remains, a true internet visionary. John Rezner, our technology point man was making it up as we went along, and did so very successfully. In retrospect it's easy to forget his contribution, but I believe he presided over the greatest,fastest growth the web had seen to that time, with very little to guide him.
The Board and Shareholder dynamics leading up to the IPO, and later the deal with Yahoo, were at times bordering on the bizarre, with many different "points of view" advanced at every turn, and each critical juncture. But at the end of the day things came together in a deal that I believe was good for all involved at GeoCities. All's well that ends well! A great post, Fred.
fredwilson
· 8 months ago
Hi Harry
Thanks so much for stopping by and leaving your thoughts
I am sure you are right about John. I did not have the benefit of working with him directly but he clearly was dealing with hypergrowth before a lot of people knew how to manage that
And the board/investor dynamics were certainly interesting
Eddie D
· 8 months ago
Having been at Yahoo! during this acquisition (as well as Bcst, Launch; pry the best $12M Y! ever spent! etc....) it's clear we were 10+ years ahead of our time in not being able to monetize social media. Yes, it brought scale, but other than that, we never figured out an efficient way to package the best and cleanest of the content into meaningful brand campaigns. Reminder that we had no "adsense" monetization effort at the time (pre Overture days), had let search slumber, and were all about big-ass brand campaigns. Looking back, it's not surprising we weren't able to effectively integration and monetize under the model that existed.
But, I will say Lisa and her cohorts were a blast to party with and brought endless fun to the old school sales conferences!
Ed
· 8 months ago
Wonderful article! I got my start on the net setting up a Geocities homepage in '95. It had lots of animated gifs and a hardwood background since I was into basketball. Now I'm a marketing manager for a fairly large Nordic online property.
godaddy
· 2 months ago
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So just a point of encouragement: I'd do a VC deal with your firm any day of the week because of how you treat entrepreneurs. Of course, your main focus has to be generating a return for your fund, but you get it that the two are not mutually exclusive. That's rare, frankly.
...words have done me nor him no harm, so far.
It generated huge pageviews and was not expensive to operate
I'm involved with isaak and his team again in a company called infongen
It's funny how times change/look at twitter pre rev etc and how they are accepted.
I was at an event today where Albert Wenger said he pretty much wouldn't fund any "ad banner" only revenue companies....... Isn't that what Geocities was all about revenue wise?
Cheers,
Dean Collins
www.LiveChatConcepts.com
It would be interesting to take that case study and distill it into several "rules" for business. I see many such useful observations. The cumulative impact is the difference between a single and a grand slam.
"America does business with its friends. If you want to go into business with somebody, make sure you CAN be friends."
Folks who read Fred's blog should know from the above story what a brilliant and high integrity investor he is.
It's really heartening that both sides would accept a deal (at least in principle) and agree to it without the usual recourse to counsel.
I've always thought the business guys should do the deal first, and let the lawyers sort out the details later.
For me, that was the place where I first learned how to code ("HTM what?"), and believe it or not, the first website I ever saw graphically was also Geocities. I was on Lynx before that. It was also the first time I made money on the internet - I had a link to Tickets.com on my Hootie and Blowfish fan site. Yes, embarrassing but these are golden memories. Back in 1997, I was making a ton of money (for a teenager) from referrals.
That was then - now I'm building web businesses for a living, so I guess I owe it to Geocities for getting me hooked.
Well said, why Facebook, Myspace, and others are growing so fast.
Good read overall, thanks for sharing.
Sahar Sarid
Co founder, Bido.com - Social Auction Platform
I'm going to be a little bit unfair: I know you wrote this as an investment story, but it's also an example of a mind-set challenge in venture these days (e.g. sometimes a disproportionate focus on deal terms vs the work of creating a valuable company). I'm sure you didn't mean it that way; it would be great to hear the (equally detailed) story about building the business.
At best, the VC is a consigliere and a recruiter and a strategy advisor and investment banker
But we don't start and run businesses.
I'm not suggesting it was worth $3.5bn back then.
But the greater fool was the company that didn't understand what it was buying
Buying reach is a fool's game.
Some inventory is really hard monetize.
Making big acquisitions on fuzzy integration plans is fraught with peril.
One of the best moves I ever made.
Tom was and is a tremendous leader and exec and would have helped yahoo immensely at that time
He could have run yahoo better than tim, jeff, terry, or dan
That, Geocities, and BCST were what let me know the whole thing was going to come crashing down.
Leaving Y! and selling all my stock (except one share, now split) at the end of 1999 was the best move I ever made.
Todd Wagner could have also helped Y! enormously.
1. Are there any fiduciary issues associated with offering a 500k option "sweetener" like this to the founder? (fiduciary might not be the exact right term here but hopefully you'll know what I mean)
2. I guess prev investors + common is always vulnerable to getting screwed with each new round of financing. And they do get screwed unless they have leverage not to.
I understand David's in this case -- you needed him to do the deal, and at least for a time to continue to lead the company twds exit / success.
What was CMGI's leverage in this instance?
So I have a lot of fond memories of Geocities and it certainly had a huge impact on my life. Glad to hear you were a part of that.
Amongst what you learned, anything you applied specifically to the other exits "from dozens of internet deals in 1998, 1999, and 2000" ?
1999 and 2000 were a blur unfortunately
I'm trying to think of a major acquisition (+$1b) where the acquirer actually got real long term value out of it. And I can't. Small purchases of IP and technology seem to generally make sense. But the probability of a large (and by definition political) organization to absorb another major entity, understand their strategy, and weave it into the DNA of the new combined entity is slim to none. And yet our entire system is incentivized to make these deals happen time and time again. Everyone wins except the long term shareholder.
The acquiring company, usually a leader in a particular space, is under tremendous pressure to keep their revenue chart going up and to the right. It's so impossible to do this organically once you reach a certain scale. So they look to acquisitions to help paint the "story".
The acquiree must either aspire to become *that* company, where they are 10,000 people strong, public company under pressure to grow quarter by quarter, or they can cash out nicely and let someone else worry about it. If you're an entrepreneur, you really don't want to become *that* company, that's why you started a company in the first place.
So the acquirer buys a great up and coming company, the founders cash out, the acquirers can't hold onto the founders because they've made enough money and can't stand sticking around pushing power point slides and fighting turf wars. So the acquirer loses the few people in the company who actually understand the business. The stock price of the combined entity continue to rise for a few quarters, maybe even a few years, on the momentum of the existing product sets. But eventually 1~2 years down the line, the code gets bloated, only incremental features are added, nobody wants to be the one to take a big risk and jeopardize the existing revenue streams, so it kinda just chugs along. All the original talent from the startup have left since they've made some money, and hate working at a big company, and the culture they had is no longer there. So it goes until some other startup comes along and catches them sleeping. By then the acquired product has sat on a shelf for so long and is no longer sexy, and the stock plunges back down. CEO gets fired...so on and so forth. Entrepreneur is sad because their baby got butchered, and drowns their sorrows in a gulfstream jet on a trip to France. Does the story go any other way?
Given the financial incentives that are currently in place for all parties involved, there is little reason to do this otherwise. So it all makes sense on a micro, 2-5 year horizon level for everyone involved. But for someone who wants to build something of value that lasts for a generation, it makes zero sense. But does anyone really do that anymore? Would anyone even be able to keep their job in this environment if they set out to build something that lasts for a generation? This is such a fundamental problem that touches on so many aspects of how we got to where we are today as a country.
However, what the YT acquisition has going for it is that it was a very young company, so it hardly had time to establish culture, one of the most difficult aspects of an acquisition that is often the most overlooked aspect.
Also, remember, circa 1999, Yahoo was Google. Before Larry and Sergey, it was Jerry and David (and of course before them was Bill and Paul). I'm rooting for Google to buck the trend, but it's a very very hard to focus on the long term when the CEO has to march off the plank and up to the speakerphone quarter after quarter and show results.
All your points are right and its a huge issue
But there are examples of where it works. Cisco, for example, has gotten huge returns on many of its big money acquisitions
I think Wikipedia will very likely last for generations, and it's a company designed to last for generations. It has over 2 million articles and continues to balloon with every waking moment. There are no serious competitors. I don't see another user-generated encyclopedia EVER coming along and knocking Wikipedia off its throne because it's lead is so magnanimous. I won't be even marginally surprised if Wikipedia is around in 2109 and still viewed as the preeminent source of reliable information.
That said, Wikipedia and Google may be the only two Internet companies with a high probably of lasting over 100 years, and perhaps that's sad.
If I was forced to pick a third Internet company with a chance of being around in 2019, I would pick Mahalo Answers for one simple reason. For whatever reason, people will always need to ask questions and get immediate answers from other real people. Yahoo Answers has been the market leader in the U.S. since it's inception, and Wiki Answers etc. have barely carved into it's market share. But Mahalo Answers will because it's the cleverest of these answer services by design. Once it overtakes Y! Answers, it could very likely retain its lead for generations and generations.
I agree Geocities was crossing a threshold into social media land. In the end, for me and groups I worked with, tripod and lycos plus zing (remember zing,com, unlimited photo storage for life?) simply were easier to use.
I am curious again about the glue that makes the people in these venture capitalist collectives stick together, i.e. what gets you to lay your money down next to the other guy's, sounds like you have to war an awful lot over the splits, sounds like very hard work.
Also, it's good that you're no longer associated in business with J.P. Morgan Chase, which these days runs what amounts to little more than a payday loan mill with their outrageous fees and practices.
I'm only sorry I never took your advice to buy Google at sub-$300 :)
Thanks for a consistently great blog - hugely valauable as I make my way through the start-up world here in Silicon Valley.
Kind regards
Kevin
May i know if google's business model can be considered as Freemium? If not, may I know if there's any name to their business model?
Thanks!
I'm not that familiar with Tom Evans and his previous companies, so I'll have to do some research there to learn more. Sounds like he's a very talented CEO as you speak very highly of him.
Also, I'd actually love to read a similar article like this, except charting your investment in Seth Godin's Yoyodyne. I find it interesting that you were involved in that one too.
Keep up the great work,
Charlie
hard to tell from your post, but looks like they owned 20% ?
if so, actual acquisition cost was $2.8 billion ($3.5 billion X 80%)?
g.
I work for a Private Equity company in Australia and although VC is a little different (but still a type of PE), the way you did the deals (over dinner and a handshake) was quite remarkable. And I believe a lot of deals were done that way back in the internet days... I'm not sure if deals are still done today like they used to (especially at these times).
Nevertheless, I enjoy your post and I have saved this site as one of my favorites. Thank you Fred.
While I'm sure he'd say something like, "I got a lot of great experience and an ad partner for my new mag" I'm sure Jason Calacanis quietly burns from not getting any Geocities equity from his involvement in the deal. At the time, there were very few people who understood the players and the market. And you needed that info, which I'm sure was incredibly valuable in the process.
I know he's learned a ton about the VC/investment side of the biz since then (and has obviously done well as a result), but I can't help think that you knew what this young lad was contributing to the process, but you were more than happy not to have him reap any of the rewards.
Looking back, do you think that was fair?
@iboy
No one in New York City had it better than me as far as I could tell--no one.
I told everyone on the planet I read business plans for Flatiron Partners in order to get meetings, emails and subscriptions and advertisements for Silicon Alley Reporter. Also, the home run of Geocities forever burned in my mind the value of stock options... good lesson to learn at that age frankly.
I didn't grow up rich and I didn't even understand what venture capital was. Fred and Jerry explained to me what a limited party was, a term sheet, and even a business plan. They taught me the ropes even after I stopped reading business plans for them.
Additionally, Fred and Jerry have championed my cause for over a decade. Jerry gave me tons of advice on Weblogs, Inc. and Fred met with me for hours when I was coming up with the idea for Mahalo.com (he even angel invested which he didn't need to do and I didn't need to take since we were oversubscribed--but we did because we're friends and we've been in this so long together).
I'm certain they weren't throwing stock options at everyone helping them out so there are no hard feelings--in fact he opposite. Jerry and Fred gave me some of the my first critical chances.... which I took, resold, flipped and exaggerated into the career I've got now.
Fred's been an older brother to me for 15 years and I'd have a hard time thinking of anyone else who's gone to bat for me more times.
Also, I never have to the pick the up the check when we eat expensive sushi.
Finally, it's never too late. If Fred can't live with the guilt he can donate the 100 shares he would have given to me to some amazing cause of his choosing. :-)
Peace and love for the old skool,
jcal
As for Fred, Jerry and the Flatiron crew, it certainly would seem that they got a very good deal at the time, but that they've also paid it back in more ways than cash or shares. Once again, their way of doing business should serve as a model in more ways than one.
Hat tip to all of you. Respect.
I'm inspired, once again. :-)
@iboy
You give me and colleagues too much credit here, and I can only echo Jerry's observations below ,and thank you guys again for the chance to work with you on this very interesting and most successful deal. I had been frustrated previously in another fund, when I had been unsuccessful in selling parners on investing in Multex,both when you had first done that deal at Euclid, and later.
GeoCities was a fasinating deal from many angles. David Bohnett was no doubt the Father of Community, and his passion for the deal jump-started and maintained the growth ride, wild for that era. He was, and remains, a true internet visionary. John Rezner, our technology point man was making it up as we went along, and did so very successfully. In retrospect it's easy to forget his contribution, but I believe he presided over the greatest,fastest growth the web had seen to that time, with very little to guide him.
The Board and Shareholder dynamics leading up to the IPO, and later the deal with Yahoo, were at times bordering on the bizarre, with many different "points of view" advanced at every turn, and each critical juncture. But at the end of the day things came together in a deal that I believe was good for all involved at GeoCities. All's well that ends well!
A great post, Fred.
Thanks so much for stopping by and leaving your thoughts
I am sure you are right about John. I did not have the benefit of working with him directly but he clearly was dealing with hypergrowth before a lot of people knew how to manage that
And the board/investor dynamics were certainly interesting
But, I will say Lisa and her cohorts were a blast to party with and brought endless fun to the old school sales conferences!