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Posts Tagged ‘securities’

If Zappos was a forced sale, would someone please come force me a raise?

Zappos just  filed its S4 with the Securities & Exchange Commission, which details the history of the merger talks with Amazon. There’s a lot of boring boilerplate here, but one of the more interesting bits is on page 68, where there’s a confusing breakdown of Zappos’ ownership.

The percentages appear to add up to way over 100% because the shares of Venture Frogs are essentially counted three times. Venture Frogs was the firm Zappos CEO and CFO Tony Hsieh and Alfred Lin used to own that first invested in Zappos back in 1999. Because either of them “could” contol the voting shares, the SEC counts each of the shares under their names, as well as under the Venture Frogs name.

But once you back that out, one thing is clear: No one could sell the company without the blessing of Hsieh and Lin. CEO Hsieh owns 29.4% of the common shares, CFO Lin owns another 2.7% and Venture Frogs– the firm they started and jointly manage– owns another 39.9% of the shares.

Sequoia owned 22% of the company, but made different returns depending on the liquidation preferences in each term sheet. In all, the firm is poised to make a return of roughly $160 million, based on Amazon’s closing price today. Sequoia invested $35 million over the companies E and F rounds. Not bad.

It’s much harder to see how much Hsieh and Lin are making, because no one knows how much of the proceeds of the Venture Frogs shares goes to their pockets or to their LPs. But they clearly did well. Hsieh made at least $214 million; Lin made at least $18 million, with the Venture Frogs shares netting an additional $163 million. If that’s a forced sale, the two are crying all the way to the bank.

Another shocker from the S4: Zappos’ revenues. We’re so used to that $1 billion-in-gross-merchandise-sales figure being bandied about that people tend to confuse that with Zappos’ actual sales. But that number doesn’t count returns, which can be as high as 40% according to people close to the company. The real sales from 2008 were $635 million, up from $527 million in 2007. In the first quarter of 2009, Zappos grew revenues at a clip of 8%.

So while you can argue Amazon still got a great deal; Hsieh and Lin did pretty well too. That makes it all the more impressive that they’re sticking around to keep growing the company rather than heading to a remote beach.

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Google finally sold back its 5 percent stake in AOL to Time Warner. Originally valued at $1 billion in 2005, Google ended up getting back only $283 million, including some cash distributions. There goes roughly $700 million, but Google already took a writedown on the investment back in the fourth quarter when the whole world was going to pot and nobody really noticed.

Time Warner took back the shares in preparation for the eventual public spinoff of AOL. When Google initially bought the shares, it valued AOL at $20 billion. Based on the price Time Warner paid for the repurchase of the shares, AOL is now worth $5.7 billion. I’m sure by the time it actually goes public, new CEO Tim Armstrong and AOL’s bankers are going to be arguing that it is worth a lot more.

So did Google get hosed on this investment? Pretty much. But you have to remember that it was part of a larger search outsourcing deal which Google still makes money from today. AOL on its own commands a 3 percent search market share and as such is probably Google’s largest partner site. Even if Google didn’t make back its investment over the past four years, the search volume AOL provides itself is worth paying for. (Search is a volume game, the more search queries you can throw ads against, the better the ROI). So don’t feel too bad for Google. It was buying distribution which helped it maintain its overall market dominance.

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Last week, we wrote about the Bing Cashback contest that rewards Bing searchers with a chance to win a $500 gift card. Well, the contest is in full swing, and if today is any indication, to win, you don’t even need to have the correct answer.

Today’s question was: “Bing #cashbackpack Trivia: What Bing cashback percentage does drugstore.com offer?” To find the answer, simply search for something like ““drugstore.com bing cash back” on Bing, and you’ll see the sponsored result right at the top.

The answer? 20%. The problem? The winner said 10%.

That didn’t stop the Bing Cashback account from tweeting out:

Bing #cashbackpack Trivia: Congrats @hussain_sattu -today’s lucky winner for the $500 cash card in the Bing backpack!

Here’s what else is odd. The winner follows one user on Twitter, Bing Cashback. And they have a total of 4 tweets, 3 of which are for the Cashback content (and the other is “studying” — this contest is supposed to be for students). This is leading some to question if the entire thing isn’t rigged, or at the very least being gamed. Regardless, one thing seems very clear: Whoever is running the contest for Microsoft isn’t paying too much attention.

The contest is kind of a joke anyway. Once someone goes out and finds the answer, it looks like a bunch of other Twitter users are just repeating it, to try and win.

What an awesome contest. I think I’ll play tomorrow. When they ask for the correct cashback percentage for some website, my answer will be “watermelon.” I’m so gonna win that $500.

Update: Now Bing is saying that on a sub-site, 10% was listed for whatever reason, so it accepted that answer along with the 20% answer. May want to get those promotions in line Bing.

[Thanks Michael]

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Dot com meltdown survivor and restaurant reservation software company OpenTable had been a rumored IPO candidate for a while. Still, it shocked many when it finally filed its intention to debut on the Nasdaq back in January. What? Does this company just have a thing for market meltdowns?

There’s still no word on when OpenTable will actually price, but so far, the IPO is still on, signaled by the company filing its first quarter earnings with the Securities and Exchange Commission on Friday. What’s more: It had an OK first quarter. Revenues increased from $13.2 million a year ago to just under $16 million, and the quarter had a modest $366,000 profit. Last year’s first quarter came with an $87,000 loss.

Now that the markets have recovered, I’m betting on a pricing later this year. That’s good for me: I’ve been promised a sit down with the CEO once the quiet period is over. (Send me your burning questions!) And it’s certainly a much better thing for OpenTable’s very patient investors and venture capital as a whole. The National Association of Venture Capitalists is so concerned about the lack of IPOs in venture land that it recently laid out an ambitious proposal to change the rules.

But OpenTable is hardly an Internet homerun. It’s frequently described as a consumer Internet company, when really it’s a software-as-a-service company. The good news –for this moment in time—is that that means Open Table doesn’t have an ad model. It actually has paying customers in the form of restaurants using its reservation software and paying it monthly subscription fees.

But what software-as-a-service companies gain in predictability of revenues, they lose in big blowout quarters. In other words: Don’t expect this IPO to set the world on fire. Netsuite—a company with a far bigger addressable market, a better growth rate and more than three times OpenTable’s annual revenues– hasn’t fared well since its 2007 IPO, and so far Salesforce is one of the only SAAS companies to get to $1 billion in annual revenues. A business like OpenTable’s takes a lot of investment in sales and marketing to close a modest deal, and that will be harder as the company strives for more international reach.

But there is one way OpenTable could use this IPO to its advantage: Forget international expansion for now and use the IPO proceeds and new stock currency to acquire a real consumer Internet company or at least some star UI talent.

I’ve long criticized OpenTable for catering only to the restaurants, and not caring much at all for the actual diners. Just look at the so-called loyalty rewards system: You practically have to eat out every day of your life to get a $20 dining voucher, and points expire without any notice. They’d do better not to have a loyalty program at all. In short, for diners OpenTable has been a convenience but not much more. And since many restaurants call you to verify the reservation and insist you call them back, it’s not really even that convenient. Can you imagine having to call United after you’ve already bought your ticket online or call Amazon to verify you really wanted to buy that book?

But increasingly OpenTable seems to be inching in the user-friendly direction, and it turns out being the only player who knows exactly where you’ve dined, when, and what availability there is in restaurants near you at every moment can be a pretty formidable advantage.

Consider user reviews, a feature idea OpenTable only recently launched. My initial reaction was it’d be near impossible for OpenTable to compete with Yelp’s edge, community and UI savvy. But unlike Yelp, OpenTable knows where you’ve dined, when. Like NetFlix or Amazon can prompt you to review a rental or purchase as soon as the transaction has occurred, OpenTable now sends out an email asking for your thoughts. With some UI help and a one-click-from-the-email rating system, the company could get people in the habit of quick reviews and build a library of your tastes, tailoring recommendations in other cities for you, or even sell that data back to restaurants. It shouldn’t aim to get the same depth of reviews that Yelp gets. Instead, it should aim for breadth. A simple, one-click yay or nay on every place you dine that no one else can replicate, because no one else owns the reservation engine.

Here’s another edge that isn’t new, but was new to me: Because OpenTable’s software is at the host stand, diners can search for real-time reservations. Say it’s a Friday night in San Francisco and you’re wondering what restaurant you can get into in ten minutes. Before you’d have to call around blindly asking how long the wait was. On OpenTable you can search for immediate openings in a given neighborhood. Most online reservations sites have an hour cut off because the systems have to sync together. But OpenTable is the restaurant’s system. It’s the first time I’ve seen OpenTable actually do something for me as a diner that I couldn’t have done any other way, and the new location-aware iPhone app makes that functionality all the more powerful.

These are baby steps to the applications OpenTable could develop on top of its in-restaurant software edge if it hired some crack consumer Internet talent. Here’s hoping the IPO is a means to that end, and not just the final destination for a company that’s mostly spent the last decade playing it safe.

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Prosper, the people-to-people lending service that launched way back in May 2006, has found itself on a rocky road so far. Last October, Prosper suspended new lending in order to register with the Securities and Exchange Commission to create a secondary marketplace for the loans on its site (the SEC wanted to evaluate whether the company should register as a securities broker, as evidenced later when it formally issued its cease-and-desist letter).

But now Prosper is back despite the fact that the SEC hasn’t yet approved its operations, and while they have respected the requested silence up during the six-month hiatus, they haven’t exactly stalled development of the service. The company relaunched its lending services yesterday for the State of California (borrowing can be done throughout the U.S.), and is hoping to take the whole thing nationwide soon.

There are new features, too. Prosper announced its Open Market initiative, which will allow other financial institutions (e.g. auto lenders, small business lenders and community development lenders) to place their already funded loans the Prosper website for auction. The company will vet lenders and require three payments to have already been made on any loan up for sale.

Prosper has raised $40 million in capital to date from Accel Partners and Benchmark Capital, among others. It’s up against well-funded competitors such as Zopa and Lending Club.

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