Late Stage VC Turning Point

That was the date of Amazon’s IPO.

The IPO raised $54 million for Amazon, giving the company a market value of $438 million. 25 year later, Amazon market cap reached $1.1+ trillion, an appreciation of over 2,500x since IPO.

Back in May 1997, Amazon was a tiny (with just 256 employees) infant (less than 3-year-old) company: ”average daily visits have grown from approximately 2,200 in December 1995 to approximately 80,000 in March 1997”; “the worldwide book industry is large, growing and relatively fragmented. According to Euromonitor, U.S. book sales were estimated to be approximately $26 billion in 1996 and are expected to grow to approximately $30 billion in 2000”.

More importantly, as a private company, Amazon had raised only $9 million of total funding, from 20-22 seed investors (average check size of $50,000) and from Kleiner Perkins (series A check size of $8 million).

Moving forward 15 years to Facebook’s IPO (May 18, 2012). Facebook was then an older, 8-year-old, and fully funded company, with $2.5+ billion of private funding from nearly 100 private investors (Accel-led).

Facebook debuted with a market cap of $104 billion. Nowadays its valuation is around $500 billion, representing a hefty 5x appreciation, but far and away from Amazon’s 2,500x.

Because of Amazon’s lesson, VCs funds realized that it was silly to promote IPOs in such short time frames – they were absorbing the startups’ risks while the benefits were being mostly captured by the public markets. Since then, big money has been poured into late stage VC, with star-startups staying private longer, shifting the value creation phase from public to private markets.

This shift in value creation from public to private markets was also realized by Yale’s endowment, which is considered the savviest US institutional investor. In 1990, direct US equity represented 47% of Yale’s total asset allocation, while VC 4%. Now, US equity represents a mere 2% of its assets, while VC moved up 23.5%.

Conclusion

Airbnb’s market cap surpassed $100 billion in its first trading day in December 2020. Indeed, it was well deserved given the company’s leadership.

We sourced Airbnb in the private market, and we enjoyed a 2x gain. Even though it is a great company, one should not expect an Amazon-like appreciation in the public market for Airbnb; Airbnb would be worth $250 trillion, 2.5x the world’s GDP.

Late stage VC represents a unique opportunity to buy before the faceless mass. That’s a true advantage enjoyed by Fabrica Ventures’ investors!