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He never sold Starbucks
Backing Starbucks early
Trinity Ventures backed Starbucks about six months before Ho Nam joined the firm in 1990, back when venture firms funded restaurants, medical companies, and even banks along with tech. Of everything in the portfolio, it was the only company that kept beating plan in the quarterly reports to investors, running about 20 percent ahead while the others missed a little here and there.
The IPO came in 1991, a recession year, when Starbucks had 146 stores and a market value that reached roughly $800 million. It was so hot that a Princeton classmate who hadn't called one of the partners in decades phoned to ask for an allocation. For a $30 million fund, the $25 million that came back in under three years was close to the whole thing.
Holding every share
In 1999, Jamie Shannon, who was on Trinity's board, still had every Starbucks share he'd received, along with the board options that kept coming. The partners were making fortunes in tech by then and had stopped consumer investing because companies like Starbucks no longer moved the needle. Working through the numbers, it looked like Shannon had made more on Starbucks than on all the tech deals that supposedly did better.
Since the IPO the stock has risen more than 300 times, which would turn that $25 million into something like $8 billion. The company has grown from 146 stores to 30,000, and its founder, Howard Schultz, came back to turn it around after the stock fell roughly 80 percent in the financial crisis.
Why do hot IPOs reward well-connected buyers?
In a hot IPO, demand for shares far exceeds supply, so the underwriting banks decide who receives them. The offering price is usually set below where the stock trades once it opens, which makes an allocation valuable. Finance professor Jay Ritter's long-running data on US IPOs show first-day gains averaging well into double digits. In 1999, the hottest year on record, his data put the average first-day gain at about 71 percent.
Why did early venture firms back restaurants?
Venture capital took shape as an industry in the 1970s, and its focus on software and the internet came mostly in the 1990s. Early funds spread their money across medical devices, retail, restaurants, and other businesses that could grow fast. Federal Express and Apple were both venture-backed in the 1970s, long before the internet boom. The National Venture Capital Association was founded in 1973 to represent the young industry.
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