Wired
I just got a message from LinkedIn that told me that “Rich people are looking at your profile.” I was very pleased to hear that. That must be a portend of good things to come, unless you think they just forgot the comma and meant to say, “Rich, people are looking at your profile.” I don’t want to pay extra for the premium service, not because I don’t like to know who is so curious about me that they are trolling my profile, but because I am closer to the end of my days caring about my networked work profile that to the beginning.
In general I am a fan of social media. I was an early investor in a company called Six Degrees, as in Six Degrees of Separation. It was a radical idea in 1998 and the thought that we could all find our way to Bill Gates via his barber and my barber was amazing. The concept pre-dated the common usage of the term social network, but that’s exactly what it was about. A bunch of us put in a bunch of money. I put in $150,000. In today’s dollars that would be $231,000, so a fair piece of change. We thought it was a super-cool concept and that it would do very well. In fact, in late 1999, right before the dot.bomb, we sold the company to an internet aggregator that was a public company.
We got about 11X (that’s venture capital speak for saying we made eleven times our money. That means I got about $1,650,000 worth of stock. However (there is always an however), we had a one-year lock-up. That meant that we couldn’t sell our shares (except for a nominal 10%) for a year. Everyone agreed and then everyone signed. No, wait a minute, one guy who I had known for a decade and had brought into the investment club held out and was refusing to sign. What that effectively meant was that he was not agreeing to the lock-up. The only way we could do the deal was to allow him to use up all of our collective 10% sale rights so he could get out and then we would have to sit for a year fully locked-up. We agreed, because how bad could things go after only a year?
Did I mention the dot.bomb and the fact that in March of 2000 the bottom fell out of the tech and internet markets? While our “friend” waltzed away with his 11X, we all sat and watched our internet aggregator stock sink lower, and lower and lower. When the lock-up was over, I ended up getting $67,000 for my stock, which meant that instead of 11X I got .45X. What’s $1,583,000 among friends, right? There were several lessons in that for me. The first was not to count chickens until you have a deposit slip in hand. The second was about friendship. When a mutual friend told me he heard I was on the outs with Mr. 11X, I explained the story and was told simply that he saw things differently than I did. Huh? I was curious how he could see things too differently, but didn’t bother to probe further because I think I knew what I would hear. I win and you lose and that’s the way life goes sometimes. OK, that’s certainly seeing things differently.
During the early 2000’s (some like to call them the “naughty aughty’s”) I and a few partners set up an internet incubator. We never really looked at any social media companies, but we looked at over 700 business plans the first year alone. We did well because our foundational investment did very well and we owned a lot of it. As for the other investments, they followed the venture capital path of a few so-so’s and a bunch of goose eggs. Every once in a while I see an ad for one of the fish that got away (Esurance comes to mind).
When we had our big cash-out a few years ago an old friend of mine who had invested $500,000 in our fund and taken out over $4,000,000 called me to say that in all his years of internet investing (he was an investment professional with a top firm) nothing he had invested in had done as well as our fund had done for him. It made me feel good and knew him to be a good and generous man, so I was happy to have made him richer.
Today I got the news blast on my phone (the way most of us get our news these days) that MacKenzie Bezos was getting 25% of Jeff Bezo’s Amazon stock. That totaled a value of $35 billion, leaving Jeff with $105 billion plus his full stake in the Washington Post and his space exploration company, Blue Origin. Hmm. Makes my little 8X fund result or even my swing-and-miss 11X look paltry. In case you were wondering, Amazon has given an initial IPO investor in 1997 a 1,200X return. For a company that went for its first 14 years without turning a profit, that’s pretty good. People forget about that unprofitable saga. This was a big bet on buying market share and building a massive platform. And guess what, it now dominates the retail world in almost every direction because of that dedication to building its platform and its market share. Try to be an internet retailer and make a buck. It almost can’t be done due to the huge portion of your revenues that amazon clips for itself. If I sell a book through my publisher Lulu, they get $7 and I get $10. If I sell it through Amazon, Lulu gets $4, I get $1.50 and Amazon gets $12.50. What a deal.
So what will MacKenzie do with that money? First of all I suspect that is the biggest divorce settlement of all time. I was actually thinking of this a few months ago and figured she would get $5 billion and be satisfied, but $35 billion? I’m guessing she gets the house too and the car. Who do you think gets the dishes? I’m going to guess that there isn’t a lot of wasted effort on what Billy Chrystal in When Harry Met Sally called the law firm of “That’s Mine, This Is Yours”. Once you divvy up the Amazon stock the rest is just paperwork.
I have to remind myself that Jeff Bezos worked about five levels below me in the early 1990’s before going to a hedge fund and then starting Amazon. He was just a guy in the employee benefits area of Bankers Trust. I am usually inclined to say that most people of wealth got there by more luck than anything else. I’m not so sure I would say that about Bezos. He had a vision and an ability to execute against that, even seeing big new arenas like cloud computing before others saw it. Few people wander through fourteen years of wilderness dedicated to their proposition, but he did. My hat is off to him. Now I just hope he and MacKenzie find good causes to support to use all that money to good purpose.
Jeff and MacKenzie are probably not the rich people looking at my profile, but they should know that we are all looking at their profiles. We know they have done great things over the past twenty years, now they have to prove that they can do worthwhile things over the next twenty, given the great head start they have.