...Thanks!
eBay founders give up $2.3 billion to repay loans
By Bloomberg News
Special to CNET NEWS.COM
April 8, 1999, 2:25 p.m. PT
eBay founder Pierre Omidyar and his first full-time employee, Jeffrey Skoll, recently turned over
stock now worth about $2.3 billion to repay loans of only $1.5 million. In the unusual math of
Internet-company finance, though, both probably still came out ahead.
In June 1997, when the Internet auction site was in its infancy, the executives each pledged almost 6.9 million
shares as collateral for two $750,000 loans from Benchmark Capital, a Silicon Valley venture capital investor.
The stock wasn't yet publicly traded, and the shares were valued at 11 cents apiece.
In January, Benchmark exercised a clause that let it collect the collateral as payment, getting almost 13.8
million shares that today are worth about $167.50 apiece--for a total of more than 1,500 times the loan
amount.
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Despite that steep price, Omidyar and Skoll might not have become billionaires themselves if they hadn't
gotten the Benchmark loans. "While it was a good investment for us, it was an even better decision on their
part,'' said Robert Kagle, one of Benchmark's founders and an eBay director.
Without the 1997 loans, eBay's founders might have sold the company for $50 million--a tiny fraction of its
current worth--to one of several newspaper chains, Kagle said. Rather than see the Internet company sold at
that price, Benchmark provided the two executives with $750,000 loans secured only by stock and their good
word.
The loans gave Omidyar and Skoll some liquidity and let them continue running
eBay as an independent concern. Now that it's the largest auction site on the
Internet, eBay commands a market value of about $20.2 billion, based on today's
share prices.
As a result, Omidyar and Skoll are fantastically wealthy, even after giving up the
stock they pledged as loan collateral. Omidyar, the company's chairman, now
holds a stake worth about $6.3 billion and Skoll, now vice president of strategic
planning, owns more than $3.8 billion of company stock, according to the SEC
filing.
Menlo Park, California-based Benchmark also was rewarded, of course, with one
of the best venture capital payouts ever. A $5 million investment in eBay --
including the $1.5 million in loans -- has been worth about $4 billion to the firm, Kagle said.
Nevertheless, the loan arrangement between Benchmark and the eBay executives, disclosed in a filing with
the Securities and Exchange Commission, underscores the tensions that can exist between venture capital
firms and companies in which they invest. The unusual loan terms suggest Benchmark extracted a steep
price in return for providing cash, according to one outside expert.
"It's not typical that the lender can reach in and take the stuff pledged'' as collateral unless the borrower
defaults, said Ian Berman, managing director of Frost & Berman, a San Francisco-based investment bank
that specializes in entertainment and education software. "That kind of structure sounds like really twisting
somebody's arm to get a loan.''
Venture capital firms argue that their profits compensate for the risks of investing in unproven companies
that more often go broke than go public. In general, venture capital firms provide the initial financing that
many small businesses need to grow and subsequently attract public investors.
"The ground is littered with ventures that haven't gone as well'' as eBay, said Bill Glynn at Southeast
Interactive Technology Funds, a Durham, North Carolina, venture capital fund.
Copyright 1999, Bloomberg L.P. All Rights Reserved. |
