Seattle Acquisitions

I read this story today about Wetpaint being acquired by Viggle and got to thinking about how much has changed since I first came across Wetpaint…

It was June 2007 and I was ambitious to learn more about the new wave of Startups cropping up in Seattle. Back then the “Web 2.0” craze was just getting started and the startups were beginning to pop up around Seattle again. I wrote a blog post on this blog about finding a great local startup to buy lunch and give a talk to the community and Wetpaint commented the next day. From there Seattle Lunch 2.0 (now TechCafe) was born!

We had a great event with ~100 crammed into Wetpaint’s pioneer square offices and I watched in wonder as my little idea grew into a massive endeavor and instigator in the Seattle startup community. You can see from the list of past TechCafe events that the community wanted TechCafe to exist and I still get emails and meet people that want it to be more active.

Thanks to Ben and Wetpaint for helping to spawn a community and a culture in Seattle.

TechCafe has put on over 50 events in the six years since we started at Wetpaint (averages to about 9 per year… although 2010 had 15 events & 2011 had 10 events meanwhile 2013 had two events). We’re also actively planning events for 2014 – starting with one in January. If you are interested in hosting or sponsoring one let me know!

Back to the acquisition, Ben Elowitz talks about it on his blog a bit and the one thing that I find incredibly interesting is that back on that hot summer day in 2007, I (nor anyone else for that matter) would have guessed that Wetpaint would be acquired six years later. Even further there was no way to tell back then that investors would take some losses in an acquisition. Those losses are important to think about, the company was acquired for $30m and investors put a total of $40m into the company so it wasn’t a complete loss – investors must have received some capital back, 2/3 or perhaps 1/2 of their initial investment.

Can your early stage portfolio or your overall investment portfolio withstand this type of outcome?

This is an important thing to think about, especially when getting into early stage investing. Losses do happen and there is no easy way to make a call like Vitaliy Katsnelson did when he pulled out of JC Penney. Early stage investors are in for the long haul on their investments which means the investment thesis needs to be as strong or better than a public market investment. There also needs to be significant enough upside with robust enough downside protection within the portfolio to allow for things like this Wetpaint acquisition to happen (because they do). This is an often overlooked factor as many early stage investors ignore the importance of portfolio building and make one or two early stage investments that may or may not work out, ignoring the importance of balance in their early stage portfolio and their investment portfolio overall.

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