SKYPE – a case study.

All information from searching on Google and estimates 27 September 2006
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The beginnings…
• Skype was started in 2002 by the founders of Kazaa:
– Nikalas Zennstrom (37 yrs) – James Friis (27 yrs)

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The beginnings…
• Kazaa was founded in 2000: A file sharing program. • 315 million downloads “most downloaded program in the world in 2003” • Had problems with music industry due to piracy. • Global free market for music, video and p***n.
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Skype Funding
• 2002 $2M Angel round 3 Angels + Tom Draper Draper Investment Co. (VC)

• 2004 $18M VC round

Draper Fisher Jurvetson Bessemer Venture Partners Index Ventures Mangrove Capital Partners
All VCs

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Milestones and Product
• • • • • Easy install Easy use (5 minutes after installation) No firewall issues Reliable connection “Worked 100x better than anything else we had seen” – Rob Stavis of Bessemer.

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Money
• Charging for
– Voicemail – Connection to a landline – Reselling arrangement with ISPs

Multibillion $$$ potential

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Making the EF - Data
• The Economist – “Giving Ideas Wings”
16th September, 2006

“The earliest investors (i.e. from angel round) saw a huge return, 350 times or so, on their estimated $2 M investment.”

• VC’s return 40x on 18 M investment.
(Estimate - PSB)

• Skype sold to

for $2.6 bn

– $1.3 bn in shares + $1.3 bn in cash (+ $1.5 bn earn out)

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Making the EF
• Final equity: Buy-out value $2,600 M Less: Angels ($2 M x 350)$700 M VCs ($18 M x 40) $720 M So: Founders + team $1,180 M

.

Approx.
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Equity split
Control Percentage ownership of equity At buy-out After angel initial round (millions) Founders $1,180 45 % + team Angels VCs TOTAL $700 $720 $2,600 27 % 28 % 100 % 100 % 100 %

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Equity split
Control Percentage ownership of equity At buy-out After angel initial round (millions) Founders $1,180 45 % 62 % + team Angels VCs TOTAL $700 $720 $2,600 27 % 28 % 100 % 100 % 100 % 38 %

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Equity split
Control Percentage ownership of equity At buy-out After angel initial round (millions) Founders $1,180 45 % 62 % 100 % + team Angels VCs TOTAL $700 $720 $2,600 27 % 28 % 100 % 100 % 100 % 38 %

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After Angel Round…
• From the table above, we can find preand post-money valuations for the company: $2 M brought the angels 38 % of Skype : So, post-money valuation is $2 M x100/38 = $5.3 M And pre-money valuation is $5.3 M - $2 = $3.3 M
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After VC Round…
• Again, we can find pre- and post-money valuations for the company: $18 M brought the VCs 38 % of Skype : So, post-money valuation is $18 M x100/38 = $47 M And pre-money valuation is $47 M - $18 = $29 M

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Angel Round $2 M Dilution

VC Round

TIME

$18 M
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Angel Round
3.3M

VC Round 8 million downloads of Skype TIME

5.3 M

6x

27 M

47 M
Dilution

55x

2.6 bn

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Equity Fingerprint
Angel Round
3.3M

VC Round 8 million downloads of Skype TIME

5.3 M

6x

27 M

47 M
Dilution
Founders + Team Angels VCs

55x

2.6 bn

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So, who are the winners?
• Founders and start team Zennstrom 40 % Friis Team Total 40% 20 % 100 %

This is typical of the equity split of a start up company

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So, who are the winners?
• Angel investors Tom Draper Angel 1 Angel 2 Angel 3 Draper Investments Co. Total 12.5 % 12.5 % 12.5 % 12.5 % 50 % 250 k 250 k 250 k 250 k 1M

100 %

2M

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So, who are the winners?
• VC round 4 VC investors 25 % each 4.5 M each Total $ 18 M

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So, who are the winners?
Final equity split:
Founders Zennstrom Friis Team Angels Tom Draper Three Angels VC (Draper Investment Co.) VCs VC1 (Draper Fisher Jurvetson) Three VCs TOTAL Share Equity / millions $ 1,180 472 472 236 700 88 263 350 720 180 540 2,600 Investment / millions $ 0 0 0 0 2 0.250 0.750 1 18 4.5 13.5 20 20% VC cut / millions $ n/a n/a n/a n/a n/a n/a n/a 70 144 36 108 n/a Returns / $ 1,180 472 472 236 698 87.75 262.25 279 558 139.5 418.5 2,590

45 % 18 % 18 % 9% 27 % 3% 13 % 14 % 28 % 7% 21 % 100 %

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So, who are the winners?
Final equity split:
Founders Zennstrom Friis Team Angels Tom Draper Three Angels VC (Draper Investment Co.) VCs VC1 (Draper Fisher Jurvetson) Three VCs TOTAL Share Equity / millions $ 1,180 472 472 236 700 88 263 350 720 180 540 2,600 Investment / millions $ 0 0 0 0 2 0.250 0.750 1 18 4.5 13.5 20 20% VC cut / millions $ n/a n/a n/a n/a n/a n/a n/a 70 144 36 108 n/a Returns / $ 1,180 472 472 236 698 87.75 262.25 279 558 139.5 418.5 2,590

45 % 18 % 18 % 9% 27 % 3% 13 % 14 % 28 % 7% 21 % 100 %

Tom Draper: 87.75 + 70 + 36 = $200 M + any money invested in his own VC company, as is normal!
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