The best Venture Capital investments of all time are responsible for
financing and scaling some of the largest and most well known corporations of our time.
By Michael Megarit.
10 of the Best Venture Capital Investments of All Time
Venture Capital plays a fundamental role in helping innovative startups scale, reach market and disrupt existing industries.
However, this is a high-risk endeavor that requires in-depth research, strong conviction and years of patience. In many cases, startups fail and Venture Capital firms lose millions of dollars. In other cases, startups reach Unicorn status and either go public or get acquired by large corporations.
Here are 10 of the best Venture Capital investments of all time.
1 – WhatsApp
WhatsApp is now a household name and a commonly used verb.
But this wasn’t always the case.
In 2011, WhatsApp was just another promising social media messaging startup. Sequoia Capital, one of the largest Venture Capital firms in the world, decided to invest $8 million in the nascent project, then valued at $80 million. Sequoia was WhatsApp’s only investor in both the 2011 Series A and subsequent Series B financing rounds.
Being the only outside investor, Sequoia received a substantial amount of equity in exchange for its precious capital. Over time, Sequoia’s belief in the startup led to even more investment.
In 2013, Sequoia invested an additional $52 million in the startup. Given that WhatsApp was generating just $20 million in revenue, Sequoia’s investment in the $1.5 billion company represented a 75x revenue multiple. In total, Sequoia invested $60 million in WhatsApp over the course of three years.
When Facebook bought WhatsApp for $22 billion in 2014, in what was the largest private acquisition of a Venture Capital backed company ever at the time, Sequoia’s shares were valued at $3 billion – representing a 50x return on investment.
2 – Facebook
Facebook is arguably the second best Venture Capital investment of all time.
Indeed, the social media giant’s $16 billion IPO at a $104 billion valuation was a major victory for Venture Capital firm Accel Partners.
In 2005, the firm invested $13 million in thefacebook.com in exchange for a 15% in the company. At that time, Facebook’s $100 million valuation was considered sky-high difficult to justify based on its annual sales.
However, investors started flocking less than a year later.
In 2006, Facebook’s Series B fundraiser raised $27.5 million, bringing its valuation to $500 million. Plenty of Venture Capital firms poured capital into the company, including Founders Fund, Interpublic Group, Meritech Capital Partners, SV Angel and Greylock Partners.
Over the next years, 4 other prominent Venture Capital firms invested in Facebook, including Digital Sky Technologies, Elevation Partners, Kleiner Perkins Caufield & Byers and Hercules Technology.
In 2010, Accel sold off $500 million worth of shares, but kept a sizeable chunk of its equity. Despite shedding this massive amount, the firm’s stake reached a $9 billion value when Facebook went public in 2012.
This mammoth return means that Accel’s IX Fund is one of the best-performing Venture Capital funds of all time.
3 – Groupon
Many people have forgotten that Groupon’s 2011 IPO was the biggest by a US web company since Google’s in 2007. Indeed, at the time, Groupon was valued at almost $13 billion, and the IPO raised an incredible $700 million.
Two of the biggest winners were Venture Capital firm New Enterprise Associates and Erik Lefkofsky, the company’s co-founder, chairman, investor and single biggest shareholder. After the first day of trading, New Enterprise’s 14.7% stake was valued at nearly $2.5 billion and Lefkofsky’s 21.6% share was valued at $3.6 billion.
The most incredible aspect of Lefkofsky’s story was the fact that he acquired $386 million worth of pre-IPO shares for only $546. After the IPO, these shares were valued at $4 billion.
Lefkofsky’s 732,600,632% return on investment is arguably the most impressive Venture Capital play of all time by a single individual.
4 – Cerent
In 1999, Cisco’s $6.9 billion acquisition of Cerent was the largest ever tech company purchase. Cisco’s acquisition enabled the company to keep Cerent’s (at the time) next-generation Sonet add/drop multiplexer out of the hands of its competitors. Thanks to its sales and marketing power, Cisco successfully moved 30,000 systems to nearly 600 customers in just over two years.
However, the biggest winner of this deal was neither Cisco nor Cerent. It was one of Cerent’s ealiest investors: Kleiner Perkins Caufield & Byers. Indeed, the Venture Capital firm’s initial $8 million investment for a 30.8% stake turned into a $2.1 billion payday. This is a staggering ROI of 26,150%.
While Cerent is nothing but a distant memory, Kleiner Perkins’ feat lives on in Venture Capital history.
5 – Snap Inc
In 2017, Snap Inc went public at a valuation of $25 billion. This was the second-highest social media and messaging exit valuation since 1999. In particular, two Venture Capital firms who backed Snap’s early development reaped the rewards.
Lightspeed Venture Partners invested $480K for 82 million shares in Snap’s May 2012 seed round. Less than a year later, Benchmark Capital Partners paid $13.5 million for 120 million shares in the Series A fundraiser. Incredibly, Benchmark was the only firm to invest in Snap’s Series A round, which shows just how forward-thinking and risk-tolerant some Venture Capital firms are.
Snap’s Series B fundraising attracted the interest of numerous Venture Capital firms, including General Catalyst, SV Angel, Institutional Venture partners, SF Growth Fund and Tencent Holdings.
However, they were relatively late to the party and failed to generate returns on par with Benchmark and Lightspeed, whose respective investments grew to $3.2 billion and $2 billion, respectively. Enough to make the Venture Capital world even more eager to invest in the promising tech startups.
6 – King Digital Entertainment
While the name King Digital Entertainment doesn’t ring a bell, its major success will: the company is responsible for developing Candy Crush Saga, one of the most influential video games of the past decade. As of 2021, the game still boasts a loyal fanbase of over 250 million users who play it more than once a month.
When Activision acquired King Digital for $5.9 billion in 2015, Venture Capital firm Apax Partner’s early gamble on the company’s fortune paid off in a massive way.
In 2005, Apex invested in King Digital when the company was in severe difficulties and on the verge of bankruptcy. This provided Apax with a high-risk, high-reward opportunity, which it immediately seized: it invested $36 million in exchange for a mammoth 45% stake in the company.
In 2012, King Digital hit the big time: the release of Candy Crush Saga led to one of the biggest successes of all time. In just 12 months, the app had earned 14 million downloads in its first week. Less than two years later, the app had 97 million active daily users. In 2016, Candy Crush Jelly Saga reached 13 million download during its first week debut. Two years later, King’s release of Candy Crush Friends saga generated 10 million downloads in one week.
When King Digital IPOed in 2014, Apax’s initial $36 million investment was worth $3.6 billion. This 100X return on investment remains Apax’s most successful to date.
On the contrary, Index Ventures, another early backer of King Digital, cashed out its 8% stake for $560 million in 2005, just several months after investing in the startup. However, don’t feel too bad for Index: their $500,000 investment in Robinhood, one of the leading online brokerage firms in the USA, is now worth close to $3 billion.
These stories encapsulate the Venture Capital ethos: win some, lose some; lose small, win big.
7 – UCWeb
In many ways, Alibaba’s investment in UCWeb holds parallels to Apax’s King Digital story.
Alibaba acquired UCWeb in 2014 for roughly $4.7 billion. The difference is that Alibaba didn’t acquire UCWeb to sell it later on, but to fuel its own internal growth.
In the late 2000s, Alibaba founder Jack Ma foresaw the explosion of e-commerce in China. From 2008 to 2014, Ma strategically invested hundreds of millions in UCWeb and accumulated a 66% stake in the company. Two big winners were Venture Capital firms Morningside Ventures and Ceyuan Ventures, who had collectively invested $10 million during UCWeb’s 2007 Series A fundraising round.
At the time, UCWeb was an early-stage startup still in R&D stage with no meaningful revenue streams. Jack Ma’s interest in UCWeb materialized one year later in 2008, and he invested nearly $700 million over three fundraising rounds over the next five years.
In the end, Ma’s vision paid off. The acquisition of UCWeb helped propel Alibaba’s valuation, which soared from $35 billion in 2012 to $168 billion in its 2014 IPO.
In this case, Jack Ma played the role of Venture Capitalist, investing precious capital in a promising but unproven early-stage startup. He established himself as a trusted partner and helped scale the business over the span of a half decade. This strong belief helped him build up his position and eventually acquire a company that its founder had initially claimed would never sell to anyone.
8 – Alibaba
Nearly 7 years after the fact, Alibaba’s $21.8 billion IPO remains the largest in US history.
While this IPO cements Jack Ma’s legacy as one of the greatest entrepreneurs of all time, it also represents one of the greatest ever Venture Capital ROI.
In 2000, Softbank, a Japanese telecom giant, acquired 34% of the young Alibaba for just $20 million. In hindsight, this appears as one of the most obvious “no-brainer” investments we can think of. However, this was not the case at the time. Back then, Alibaba was pre-revenue, pre-business model and offered zero guarantee of success.
It was clearly a risky play.
However, when Alibaba’s IPO debut gave the company a $231 billion market cap, Softbank’s stake rose to well over $60 billion, one of the most lucrative Venture Capital investments of all time.
9 – JD.com
JD.com, the Chinese e-commerce giant, is another Venture Capital success story.
In 2006, JD.com was a fledgling startup seeking a $2 million investment to bolster its Balance Sheet. Richard Liu, JD’s founder, solicited Capital Today, a Chinese Private Equity firm, who ended up investing $10 million, or 5x more than hat Liu was asking.
A few years after Capital’s initial investment, Chinese e-commerce exploded, and so did the Private Equity firm’s stake in the company. In 2014, when JD went public, Capital’s take was worth nearly $2.5 billion.
10 – Delivery Hero
The 10th best Venture Capital investment on our list is European takeout platform Delivery Hero, who went public in 2017 at a valuation of $5.1 billion.
The IPO was a landmark moment for Rocket Internet, one of Delivery Hero’s biggest investors, who had acquired a 30% stake for $560 million in 2015. At IPO, Rocket generated an estimated paper return of at least 3x.
Other early Venture Capital investors also generated substantial ROI: Holtzbrinck, Team Europe, Point Nine Capital, WestTech Ventures, ru-Net and Kite Ventures all reaped the rewards of their early investments.
The Bottom Line
How should we interpret these successful Venture Capital investments?
Granted, every success hides plenty of failures.
However, that is the law of Venture Capital.
These risk-taking investors are willing to lose capital on several plays in the hopes that just a handful of investments generate once in a lifetime returns. When that happens, all the losses are immediately compensated.
In addition, Venture Capital firms are often the only financial institutions willing to invest in seed and early-stage startups. Without them, many generational companies would fail before reaching market.
For this reason, Venture Capital is a crucial component of the free market economy. Without it, entrepreneurs would have much more difficulty disrupting industries and revolutionizing our lives.
Thus, every startup founder should seek Venture Capital funding to fund their growth.
ABOUT THE AUTHOR
Michael Megarit is a partner with Cebron Group.
With over 25 years of domestic and international corporate finance experience,
he provides M&A and capital advisory to high-growth technology companies.