VC Cliche of the Week

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VC Cliche of the Week

I've got Bubble 2.0 on my mind this week.

And so I am going back to Bubble 1.0 and thinking about what worked, what didn't, and what we could have done differently.

One thing that worked great in Bubble 1.0 was the Quick Flip.

That's when you invest in a company and within a year, you've sold out for a nice return. Generally its around 3 to 5x. And that's a good return in anyone's book.

We did that at Flatiron a lot in 1999. Some of the names that come to mind are Vertical One to S1, Gamesville to Lycos, Abuzz to The New York Times, Patagon to Banco Santander, Liveprint to Kinkos, and Starbelly to Halo. I am sure the list is longer than that.

In most cases the Quick Flip is made to a large established company that is looking to get in on some new technology (S1, New York Times, Banco Santander, Kinkos, Halo).

Jerry was the master of the Quick Flip at Flatiron. In 1999, I think he did 3 or 4 of them.

I've never been a big fan of the Quick Flip. It goes against my natural bias that you should go into every investment looking to build businesses. The Quick Flip mentality is not a good one because what happens if the large companies decide they can build instead of buy and then you wake up and realize that you haven't built a business and then what do you have? I think the Quick Flip is part of the broader "no business model" problem that we had in spades in Web 1.0 and I am seeing more and more in Web 2.0.

But, and this is a big but, you must always recognize that venture backed companies are not sold, they are bought. When the large company comes knocking on the door and offers a good deal, you should generally take it.

So, in summary, I think the Quick Flip mentality is dangerous, but when offered a Quick Flip, its often a good idea to take it.

Attribution - the photo at the top of this post comes from Flickr. It was tagged "flip".

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Tracked on Mar 31, 2005 2:47:53 PM

Posted March 30, 2005 in Venture Capital and Technology

Comments

Another cliche' we use around here is "getting a gun put to your head" -- when the big acquirer shows up a little earlier than you'd like and you're more or less forced to do the Quick Flip before you want to.

Posted by: another.vc | Mar 30, 2005 3:51:08 PM

Fred, are you stoned? Or worse? Gamesville was no "quick flip." Stuart Roseman and I started work in 1994, and by 1996 had a viable -- profitable -- internet games and media company, and then only raised VC money in 1999 because 1) it was so amazingly plentiful and cheap, and 2) by the crazy standards of the bubble era, a company that hadnt raised VC (even a huge and profitable and wildly growing one) had no documented "valuation" and so couldnt be packaged up for IPO or sale by the bankers et. al. As you perfectly well know, Gamesville had more cash on hand the day it was acquired by Lycos than on the day we received VC investment.

It is extremely painful to be so wrongfully portrayed, no matter how well meaning your post may be. VCs invest in entreprenuers and businesses; they dont create them out of one of their own ribs. Please edit your blog or at least print a retraction. Thank you.

Posted by: steve | Mar 30, 2005 9:36:14 PM

Sorry I'm not done. ;)

As you know, I love Jerry, and he is "master" of many things, but it is ridiculous to say, as you do, that Jerry "did" the sale of Gamesville.

For one thing, the offer came in to me, the CEO, and I did the vast majority of negotiations, along with Bob Davis and his team from Lycos (no bankers, and no VCs).

To speed the process, the Gamesville VC investors made Jerry their representative, a move I welcomed, and he played a key role, and his counsel and work was invaluable to Gamesville, and to me personally. But to say he "did" the deal is well, silly.

Sorry, but as you know, one of my pet peeves is the VC community's sometimes callous, sometimes simply lazy, treatment of portfolio companies and entreprenurs as product, designed and manufactured and packaged and disposed of by investors. I know you, Fred, are about the least guilty of this as any investor I know -- hence my deeper anxiety.

Posted by: steve | Mar 30, 2005 9:48:29 PM

Yowsa, Fred, you're on a roll. First we have "spot on" support for VC bashing and now we are doing third rail commentary about flipping companies.

"VCs invest in entreprenuers and businesses" from prior comments are worth repeating.

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Posted by: msn messenger | Nov 7, 2005 8:34:11 AM

Posted by: astuce | Nov 28, 2005 6:59:15 AM

A VC

Musings of a VC in NYC