Investments I Should Have Made
Since I have been in the venture industry quite a long time, I have had many opportunities to screw-up, in particular, I have "passed" on several investments which turned into very successful companies. My reasons for passing on these investments varied. Occasionally, I used the oldest excuse in the venture capital playbook: “It’s overvalued!” On others: “I’m too busy doing more important work”. Whatever the reason, I would like to honor these companies - my "anti-portfolio" - whose successes have certainly taught me humility! Or, to put it another way: if I had invested in any of these companies, I might not still be working.
7/24 Solutions: In 1997, I worked on the first round term sheet for 7/24 Solutions with the founder of 7/24 Solutions, Greg Wolfond, who was also the lead investor in my fund, Orchard Capital. There was no real plan for revenue, so I didn’t ask Greg if Orchard could invest. 7/24 Solutions went public and had a market capitalization of $11 Billion in early 2000.
Red Hat Software: In 1998, one of the Orchard investors, Bill Young, asked me to work on the term sheet for Red Hat Software, which was being started by his cousin, Bob Young, and was working on “open source” software. Again, I was stuck in the old paradigm of “Where will the revenues come from?”, so I didn’t ask to invest. Of course, Red Hat went public in 1999 and now has a market capitalization of over $10 Billion.
Cyberplex: In 1999, Cyberplex had revenues and was already publicly traded on the Vancouver stock exchange. They were raising more capital and I offered to buy shares for 85 cents, but they wanted $1.00 per share. Because I was a careful investor who didn’t want to “overpay”, I didn’t do the deal – then watched the stock climb to $35.
Wily Technology: In 1999, a close friend introduced me to a great young technical entrepreneur, Lewis Cirne, a Canadian who had moved to Silicon Valley, and who had started a software tools company which already had some high-quality customers. The Orchard Investment Committee didn’t like the deal, so I passed in oder to avoid a confrontation with them. Wily went on to be acquired by Computer Associates for $375 million in 2007; if Orchard had done the deal as originally agreed with Lewis Cirne, the financial return for Orchard would have been about 20X the investment. Then in 2009, my friend invested in Mr. Cirne’s next company, which looks like it will be another huge winner (but it was not offered to me since I had passed on Wily).
Recommind (www.recommind.com; San Francisco, CA). In 2001, through another close friend, I was introduced to another great Canadian entrepreneur working in San Francisco (see the pattern here?). Because the amount of capital required was more than Orchard could invest, I partnered with another Toronto-based VC firm. When my partner VC firm pulled out of the deal, I passed instead of trying to find a new partner. Recommind is thriving and now considering an IPO at a price which would represent about 75X my (missed) investment.