Wednesday, August 27, 2008

paidcontent: Photobucket’s Sale To Fox: How VC Insiders Made Big Personal Returns

"The documents showed that the primary investors were IVP founders Jeff Horing and Jerry Murdock, who each invested $300,000 into the company and personally made 20 times their money—or $6 million each from the investment. Our informer had this to say: “As shown in the stock purchase agreement, the LLC was called IVP/PB LLC, had a similar name to Insight Venture Partners, and even had the same address as Insight Venture Partners—680 Fifth Avenue in New York—giving the founders of Photobucket the impression that an actual Insight fund was investing in the company.”

I am pretty sure Photobucket founders knew IVP, as a fund, was not investing, but turns out most of the other details are true, as WSJ lays out. WSJ says that the return for IVP partners was more than $40 million (not $60 million as the tip we got) and that Horing and Murdock got above $5 million (and not $6 million as our tip said).

This cautionary tale shows the conflicts that venture partners have in investing directly into startups, instead of the venture funds they manage. Some VC funds allow this if the investment is outside the scope of its own investing this case IVP, which has about $3 billion under management, makes later-stage investments in tech companies, often taking a controlling interest. The firm’s average investment size is about $35 million, Horing told WSJ. Photobucket didn’t come close to meeting those criteria, and hence the personal investment in Photobucket was the only option for these individuals who wanted to invest in the fast-growing (in terms of users) service. "

1 comment:

Elliott said...

Or - IVP could have established a wholly owned division within IVP that supports and works with the Seed/Startup community. It is simple vertical integration. This Seed/Startup division (let's call it - The START Fund) would still have to provide acceptable returns to IVP, but the management and the operation would be structured to best utilize the existing entrepreneurial infrastructure. Again, think vertical integration.