Why It Sucks To Be A VC

Online restaurant reservation service OpenTable has set the terms for its IPO—and they don’t look wonderful for its venture backers (see table below). As a group, VCs invested a total of close to $69 million in the company, but at $13 each their shares would be worth a combined $162 million following the IPO. That means the VCs would have collectively earned a multiple of just 2.36x on their investment (were they to cash out at the IPO price).

The only VC that stands to earn a decent return is Benchmark Capital. It invested an estimated $12.7 million over two rounds (according to data from peHUB publisher Thomson Reuters). With 5.3 million shares that would be valued at $68.8 million, Benchmark is looking at a potential multiple of 5.4x. Still, that’s not great for nine years of work.

The second best performance would go to Impact Venture Partners, which is run by PC magnate Michael Dell’s brother. Like Benchmark, Impact invested $12.7 million over two rounds starting in 2000, but it holds fewer shares (3.5 million). Those shares stand to be worth $45.5 million, producing a potential multiple of 3.59x.

Coming in third is Integral Capital Partners, the VC fund started by Roger McNamee. It invested $9.2 million in one round in 2000. Its 1.5 million shares would be worth an estimated $19.5 million after the IPO, for a potential multiple of 2.13x.

At least one VC would take a loss: Windspeed Ventures, which manages a $9.2 million investment made in 2000 by Comdisco Ventures. It holds a total of 103,522 shares, 52,000 of which it plans to sell in the IPO for proceeds of $676,000. Combined with 51,522 shares valued at about $670,000 following the offering, its stake stands to be worth just $1.3 million after the IPO.

Based on the presence of direct secondary firm W Capital Partners in the SEC filing, it would appear that some VCs bailed out of the deal prior to the planned IPO. But given that W Capital holds just 155,285 shares valued at about $2 million, whoever sold a stake to W Capital took a big haircut.

Could one of the VCs who sold to W Capital be Draper Richards? It invested an estimated $580,000 in OpenTable over three rounds starting in 1999, but its name doesn’t appear in the SEC filing, suggesting that Draper Richards sold its stake prior to the IPO.

Note that all of my math is based on OpenTable’s estimated share price of $13. It is entirely possible that the market will love the stock and send it soaring. Possible? Yes. Likely? Eh.

[UPDATE: By popular demand, here are the full details of the investments rounds — or at least as much as Thomson Reuters was able to dig up. Remember, this is “private” equity. All you number crunchers, crunch away!]