“Kid, haven’t you heard of Friendster? Move on. It’s over!”
VC Jeremy Levine passing on Facebook, 2004 (speaking to Eduardo Saverin).
Ouch.
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Bessemer Venture Partners passed on Apple, Google, Facebook and countless other highly successful companies.
In what they’re calling an “anti-portfolio,” the venerable firm explained their reasons for turning each founder down. How they arrived at these decisions can teach us investors a great deal.
I noticed a few themes:
Valuation: Bessemer passed on Apple, Airbnb and Atlassian because the valuations were too high. All went on to become massive companies.
The very best startups tend to go for a premium price. Google’s Series A valuation was around $100 million – scandalous at the time.
If you know you have one of the hottest companies in Silicon Valley, why sell cheaply?
I expect valuations to be reasonable. But focusing too much on price can lead us to “value traps.”
These companies are cheap for a reason and never go anywhere.
Founders Too Young: David Cowan had incredible luck — his friend was renting her garage to Sergey Brin and Larry Page.
The two young comp sci students were working on a new search engine called Google.
The Bessemer partner was unimpressed with these student founders. And who needed another search engine?
“How can I get out of this house without going anywhere near your garage?”
David Cowan
What if Cowan had been willing to take just a 20 minute meeting with Sergey and Larry?
Too Much Competition: Bessemer passed on Facebook and Zoom partly due to competition.
There were already so many video conferencing tools. And haven’t you heard of Friendster?
What the Bessemer partners missed is that being first doesn’t mean you win. The best tool wins, and it’s often not the first.
General Hubris: Now, we come to one of venture capital’s worst scourges.
Sometimes VC’s are so overconfident they can’t imagine being wrong.
You see that in Levine’s treatment of Eduardo Saverin when he passed on Facebook. He knows everything and this “kid” is deluded.
You see it again in David Cowan’s rejection of eBay:
“Stamps? Coins? Comic books? You’ve GOT to be kidding. No-brainer pass.”
David Cowan
We investors must always remember that we do not know the future. The best we can do is take an educated guess.
We will be wrong most of the time. And we must never forget that.
So I try to keep an open mind. And even when I pass on a company, I try to be polite.
With all these misses, you’d think Bessemer is the worst venture firm in the world, right?
Wrong. It’s actually one of the best!
That’s the magic of our industry. We can be massively wrong almost all the time, and still be a huge success.
Bessemer was an early investor in LinkedIn, Twitch, Shopify and many other iconic companies. They may have missed Apple and Google, but they didn’t need them.
I applaud Bessemer’s candor in assessing its mistakes. That’s how we learn!
What mistakes do you see investors making? Leave a comment at the bottom and let me know!
More on tech:
Entrepreneurial ADD: The Startup Killer
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Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.
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