Venture-capital report: Entrepreneurs find a new way to cash in
"In the startup world, when companies mature, they go to the public markets to fund growth and allow investors and employees to reap the financial rewards of their work.
WhitePages.com took a different route recently to reach the same goals.
The Seattle company, which provides residential phone listings online, had been profitable since it was formed five years ago. It didn't need capital, but it still made sense to compensate those who had contributed to the company's early days, said Max Bardon, WhitePages.com's president and chief executive.
So it sold stock to private investors eager for a piece of the company. But unlike venture-capital deals, in which investors buy stock in a company, a couple of private-equity companies bought stock directly from WhitePages.com shareholders.
In all, the unidentified investors purchased $31.7 million in stock from the founder, friends and family and employees. About $9.4 million more replaced working capital the company had sent out as dividends.
These so-called "founder sales," or variations of them, have been happening as investment capital becomes more available and companies stay private longer. This pattern is a reversal from the past couple of years when companies could barely attract money for operations, let alone shareholders' pockets.
But now, as more companies weather the rough patch and, in some cases, reach profitability, surviving startups have found it easier to attract cash.
"This is absolutely a positive event," said Matt McIlwain, a managing director at Seattle-based Madrona Venture Group, which does not have a stake in WhitePages.com.
"You have these companies that were able to survive and thrive. Investors are saying, 'Here's some capital, so there can be some realization today for the hard work that you've done.' ""
WhitePages.com took a different route recently to reach the same goals.
The Seattle company, which provides residential phone listings online, had been profitable since it was formed five years ago. It didn't need capital, but it still made sense to compensate those who had contributed to the company's early days, said Max Bardon, WhitePages.com's president and chief executive.
So it sold stock to private investors eager for a piece of the company. But unlike venture-capital deals, in which investors buy stock in a company, a couple of private-equity companies bought stock directly from WhitePages.com shareholders.
In all, the unidentified investors purchased $31.7 million in stock from the founder, friends and family and employees. About $9.4 million more replaced working capital the company had sent out as dividends.
These so-called "founder sales," or variations of them, have been happening as investment capital becomes more available and companies stay private longer. This pattern is a reversal from the past couple of years when companies could barely attract money for operations, let alone shareholders' pockets.
But now, as more companies weather the rough patch and, in some cases, reach profitability, surviving startups have found it easier to attract cash.
"This is absolutely a positive event," said Matt McIlwain, a managing director at Seattle-based Madrona Venture Group, which does not have a stake in WhitePages.com.
"You have these companies that were able to survive and thrive. Investors are saying, 'Here's some capital, so there can be some realization today for the hard work that you've done.' ""
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For more information, visit www.EvanCarmichael.com. |
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