Sequoia could take $480 million from Google/YouTube deal

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Columbus Day!

Update: The deal was just announced; Google has purchased YouTube for $1.65 billion – all in stock.

The Wall St. Journal (subscription required) was among several sources this morning who reported that an announcement between Google and YouTube could come later today. The WSJ also confirmed an estimate that Sequoia Capital holds roughly 30% of YouTube, something we had previousy speculated on.

One source close to YouTube tells us that founders Chad Hurley, Steve Chen, and Jawed Karim each stand to make between $100 and $200 million from the deal. How much will Sequoia take?

Sequoia was among YouTube’s first funders, providing $11.5 million in two rounds. When $25 million more was rumored to have come from parties unknown this April, Michael Arrington wrote that Sequoia likely did whatever it could to maintain it’s equity share in the company. He estimated that share was between 25% and 30%.

What does this mean? If Sequoia put in $11.5 million for 30% of the company, and if in fact YouTube is being acquired for $1.6 billion then Sequoia’s stake translates into approximately $480 million (subject to a slight adjustment upwards if Sequoia had what is known as participating preferred stock). That’s a multiple of more than 41 times what was invested in a company founded in February 2005. It may not upend the recent argument that the VC model is broken, that there are few huge exists available and not much else, but it’s certainly interesting to consider.

These numbers beg comparison with Sequoia’s investment in Google. According to Bill Burnham’s respected analysis last summer of Sequoia’s take from the Google IPO the fund turned a $12.5 million investment in 1999 for 10% equity into roughly $4.7 billion. That was at much lower stock price at IPO; the stock initially sold at $85 per share, today it’s up to $430 per share on a $131 billion market cap.

So Sequoia won’t make a Google-like return on their YouTube investment. But a 41x return on an investment made a year ago isn’t something to sneeze at, either.

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