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Bezos took the absurd term sheet
Offers and a term sheet
Around 2005, Basecamp was taking off, and some 40 venture capital firms had reached out. DHH had watched the dot-com boom and bust up close and wanted no part of them, and he did not fully trust himself to turn down a $20 million check or a $50 million check when his bank account held about $8,000.
Bezos showed up around the same time. The founders flippantly told him no, and his team politely reached out again to say he really wanted to meet. They answered with an almost offensively overvalued term sheet, drawing a line to the moon and asking to be paid as though they were already there. Bezos took it.
What the deal changed
37signals has paid him back many times over, and he still owns his block of the company, so another dividend check goes out every quarter or so. The investment meant that if Basecamp fizzled, the founders would not have to go look for a job the next Monday, and it gave them the confidence to say no to every other offer.
Advice at dinner
The advice came at a dinner once a year in the early years. The founders laid out their trials, and Bezos asked what they thought they should do. They told him, and he answered that it was a good idea and they should do it.
Why do venture firms push for fast growth?
Venture returns come mainly from a few investments that grow enormously, while many others return little or nothing. To pay their own investors, funds usually need those winners to be sold or listed on a stock exchange. Most venture funds are set up as partnerships with a life of about ten years.
How does a term sheet set a valuation?
A term sheet states how much money an investor will put in and what percentage of the company it gets in return. Dividing the money by the percentage gives the post-money valuation, so $1 million for 10 percent implies a $10 million company. A higher price means the founders give away less ownership for the same cash. The document also covers rights such as board seats and who gets paid first in a sale.
What happened to dot-com stocks after 2000?
The Nasdaq Composite peaked above 5,000 in March 2000. By October 2002 it had fallen about 78 percent from that high. Many internet companies that went public in the late 1990s shut down or were sold for very little. The index did not close above its 2000 peak again until 2015.
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