posted on March 16, 2005 12:25:12 PM
My youngster just read out loud to me, part of an article out of one of his golf magazines; it was an interview with Phil Mickelson .... and the interviewer had asked what was the best investment he's made ...
His answer was, "I was part of a group that purchased eBay before it went public. I'm still in it."
How can you purchase part of a company before it goes public? Who *did* "own" ebay before it went public????
posted on March 16, 2005 12:49:20 PM
venture capitalists who pony up the money for startup,seed capaital,expansion.
professional who render services to startup firm and take warrants and options in lieu of cash compensation.
relatives who receive stocks as gifts or work rendered.
employee award -year end bonus.
-sig file -------
Eat grass,kick ass,never go belly up!
posted on March 16, 2005 01:17:19 PM
Excerpt from the book The Perfect Store: Inside eBay by Adam Cohen:
In January 1997, Mark Del Vecchio was at his computer in his basement in Prospect, Conn., catching up on posts on a Web site devoted to memorabilia. Del Vecchio, who collected movie posters, came across what looked like a rare find: a Breakfast at Tiffany’s poster with Audrey Hepburn in a black cocktail dress waving a long cigarette holder. The note about the poster had something Del Vecchio had never seen before: a link to AuctionWeb, where the poster was listed for sale. The poster turned out to be a reproduction. But Del Vecchio was drawn in to the auction site. He spent hours scrolling through every item up for sale.
Del Vecchio had more than a hobbyist’s interest in online auctions. He was general manager of electronic publishing for the Hartford Courant, part of the sprawling old-media company Times Mirror, which owned such papers as the Los Angeles Times and Baltimore Sun. In the notoriously change-averse newspaper industry, the Courant was that rare newspaper that embraced new technology. It was among the first newspapers to have a faxed edition and a Web site.
When Del Vecchio saw AuctionWeb—the initial name for eBay Inc.—he realized its listings included just the sorts of items that otherwise would have been sold through newspaper classified ads. If online auctions took off, it occurred to him, they would pose a significant threat to the newspaper industry, which derived as much as 40% of its revenue from classifieds.
The thing to do, Del Vecchio decided, was to persuade his employers to form a partnership with or, better yet, buy eBay. Times Mirror, however, was hardly rushing to embrace the Internet. Del Vecchio also understood that newspapers’ powerful advertising departments would try to scuttle any alliance with eBay because of the threat it posed to classified listings.
Nevertheless, Del Vecchio forged on. He sent an e-mail requesting a meeting. When no response came, he sent a second. And a third. Finally, Del Vecchio just announced he was going out to eBay’s cluttered offices tucked into a shopping center in San Jose, Calif. He asked Larry Schwartz, an entertainment entrepreneur he had hired a few months earlier as a consultant, to come with him. In March, the men arrived in San Jose.
Del Vecchio and Schwartz had seen their share of start-up businesses. Even so, they weren’t prepared for their first encounter with eBay. When they arrived, founder Pierre Omidyar didn’t seem to be around. Eventually, Omidyar walked in with his head of technology, who was loaded down with two large plastic bags from CompUSA. Schwartz asked what was in the bags. Omidyar said they contained parts for a new server to keep the site operating.
Looking around, Del Vecchio and Schwartz saw overstuffed canvas bags filled with checks. An employee, looking completely overwhelmed, was hunched over a computer typing in dollar amounts. Suddenly, it clicked for Schwartz. “I’m thinking, what a great business to be in, where you can’t even open the checks fast enough,” he recalls.
In a report to their Times Mirror superiors, Schwartz wrote that eBay was the leader in Internet auctions, which were growing at the staggering rate of 20% a month. He warned that, while few people were paying much attention to the online auction phenomenon then, that wouldn’t be true forever. He argued that eBay could provide Times Mirror with a line of defense that would let it participate in the fast-changing Internet rather than sit back and watch as customers switched from classified ads to online auctions.
When they were out in Campbell, Calif., Del Vecchio and Schwartz limited the discussion to the possibility of Times Mirror’s making an investment in eBay—possibly buying a 20% stake. In his report, Schwartz urged Times Mirror to buy the whole thing.
Receiving mild expressions of interest from Times Mirror’s corporate offices, Del Vecchio and Schwartz continued their discussions with eBay. For the first time, they broached the idea of Times Mirror’s buying the entire company. In late April, Omidyar and an associate, Jeff Skoll, flew to Los Angeles. In a windowless conference room in the Los Angeles Times building, the two men sat down with a group of high-level Times Mirror executives. Omidyar and Skoll made it clear they would sell if the price was right.
EBay’s leaders each had his reasons for considering selling. Skoll, ever the cautious one, was convinced that, no matter how well eBay was doing, its success could evaporate at any time. “We were a company of fewer than 10 people, with flaky technology, hugely worried some bigger entity would come in, and we were still called AuctionWeb, with an ugly black-and-white logo,” Skoll recalls. Omidyar, who already was thinking of moving on, was more concerned about not spending any more time on the company than was absolutely necessary. His position was straightforward: He and Skoll should figure out what they thought AuctionWeb was worth, and see if Times Mirror would pay that much. “If you can get that value today, without taking that time out of your life, you should declare victory and go home,” Omidyar believed.
There was, however, no easy way to arrive at eBay’s value. Omidyar had an intuitive approach: “EShop [was purchased] for about $40 million,” he says, recalling his first start-up venture. “I thought that’s what a company sold for.”
Times Mirror certainly could have afforded to buy eBay for $40 million, but it wasn’t enthusiastic about the future of online auctions. The main objection was the one Omidyar had been hearing from the beginning: that strangers would never trade with strangers over the Internet in large numbers. Coming from the ink-stained world of the so-called old media, Times Mirror management also failed to see what eBay had, exactly, that was worth millions of dollars. Management “kept saying, ‘They don’t own anything,’” Del Vecchio says. “‘They don’t have any buildings. They don’t have any trucks.’”
Del Vecchio and Schwartz tried to explain that eBay’s AuctionWeb site had a community and a brand and that it was fast building a prohibitive lead in Internet auctions. The two argued that not having buildings and trucks actually was an advantage: It was because eBay was a virtual business that it had gross profit margins of greater than 80%. Most of the arguments were met with blank stares, Del Vecchio recalls.
The discussion eventually came to a scaled-back alternative. Times Mirror considered investing $5 million for one-eighth of AuctionWeb. Times Mirror could thus claim some of the upside if eBay did well, while limiting its investment in a field about which it remained dubious.
In the end, however, Times Mirror balked at even a limited investment. “The powers that be just didn’t think [online auctions] would be that big,” Schwartz says.
Remaining independent was, in retrospect, critical to eBay’s success. It remained nimble, helping it thrive in the fast-evolving world of e-commerce. If eBay had been acquired, it could have been paralyzed by Times Mirror’s bureaucracy. Decisions that Omidyar and Skoll made in the hallway suddenly would have required elaborate levels of approval. Being part of a sprawling media empire also would have meant political battles and turf wars. The institutional opposition Del Vecchio feared from newspapers’ ad departments almost certainly would have plagued eBay, blocking it from moving aggressively to sell cars, real estate, and other big-ticket items.
“For eBay, it was the best deal that never happened,” Del Vecchio says. “If eBay had been acquired by Times Mirror, it would be nothing like it is today.” For Times Mirror, not buying AuctionWeb for $40 million was a blunder of epic proportions. Indeed, in March 2000, when Times Mirror was purchased by publishing rival Tribune Co. [www.tribune.com] for $8 billion, eBay had a stock-market value more than twice that amount. Today, even after the bursting of the dot-com bubble, eBay has a market capitalization of more than $16 billion.
With Times Mirror balking, Omidyar and Skoll accepted $5 million in financing from venture-capital firm Benchmark Capital [www.benchmark.com], with the goal of going public. Given that money was pouring in in sacks, Omidyar and Skoll simply parked the cash in a bank account. However, linking up with a venture-capital firm meant that Times Mirror was truly out of the picture.
Times Mirror, its interest piqued by eBay, quietly bought a competitor, Auction Universe, for $200,000 in August 1997. Schwartz was installed as chief executive. The well-designed—and now well-financed—business was formally launched that October. Unfortunately for Times Mirror, it got what it paid for: While eBay, at the time, had 300,000 registered users and was hosting 115,000 auctions a day, Auction Universe had only about 1,000 auctions going at one time. When a reviewer from PC Magazine compared the photo-equipment category on the two sites, he reported that eBay listed 2,500 cameras and more than 1,300 lenses. Auction Universe had eight cameras and no lenses. The buyers and sellers all were at eBay.
By being the first to really get the online-auction idea right, eBay had built an unassailable advantage. The lead was so great that G. Patton Hughes, an Auction Universe marketing employee, says even attempts to market Auction Universe’s site wound up helping eBay. He says that “people would come to Auction Universe, do a search, and end up going to eBay.”
