Why Anyone Who's Anyone in the Valley Took Some Profits on eBay
By Adam Lashinsky
Silicon Valley Columnist
5/28/99 7:00 AM ET
The political elite of Washington, D.C., shows up at that oh-so-special White House gala. The top of the heap in Hollywood snags an invite to Vanity Fair's Oscar-night party. But in Silicon Valley, the Who's Who is identified on a more obscure but far more precious list: the roster of selling shareholders in eBay (EBAY:Nasdaq).
Look, there's Roger McNamee of investment funds Integral Capital Partners and Silver Lake Partners selling shares on March 17 and 29 worth a total of almost $1.4 million. Oooh, there's Sun Microsystems (SUNW:Nasdaq) Chairman and CEO Scott McNealy ditching 7,666 shares on Feb. 5 for proceeds of $1.7 million. And isn't that Mike Homer, chief of Netscape's Web site unit, cashing in $992,213 worth of eBay shares on Feb. 11?
These luminaries have one thing in common besides knowing each other and most everyone else who matters in Silicon Valley. They are all friendly enough with someone at Benchmark Capital, the Menlo Park, Calif., venture-capital firm that turned a grubstake in eBay into the investment of a career.
A typical venture fund has two types of investors other than its principals. Limited partners generally are major institutions or fabulously wealthy individuals who can write a check for more than $1 million in one sitting. But the supreme backscratching tool in Silicon Valley is the "sidecar fund." That's where the merely well off -- but exceedingly well-connected -- can pony up for a measly $100,000 or less.
Either way, when a single venture investment has paid off the way eBay has, the VC firm may quickly distribute all or part of the stake to the fund's investors. At Thursday's close of 169, eBay's shares are up 28-fold from their September initial public offering price.
Benchmark handed out a third of each investor's eBay shares in early February. That's when the selling began.
"They have a huge sidecar fund," says Donna Dubinsky, co-founder of Palm Computing, who's now running software upstart Handspring in Palo Alto, Calif. Dubinsky sold her shares as soon as Benchmark distributed them, reasoning that she'd still be getting two-thirds of the stake in the future. "A lot of us looked at it and said, 'We've got a great deal here,' " says Dubinsky, who donated some of the shares, worth $318,864 on Feb. 10, to charity.
The insider-sales data on Yahoo!'s (YHOO:Nasdaq) financial Web site requires some deciphering. The untrained might not recognize "Komisar Rarely" (sic), who sold 3,066 shares worth $734,307 on Feb. 17, as Randy Komisar, the former president of Lucasfilm in Marin County, Calif., and currently an adviser to technology start-ups.
Komisar says he had just returned from a cycling trip in Asia ("living on so little money that I could live off this distribution in splendor for the rest of my life") when he had to decide whether to sell the stock. After watching the shares yo-yo for about two weeks, he bailed out at about 240. (eBay shares split 3-for-1 on March 2.)
Other Silicon Valley hotshots to boost their net worth by selling eBay shares include Tim Haley, a partner in Benchmark competitor Institutional Venture Partners but formerly an independent headhunter; Steve Perlman, the outgoing CEO of Microsoft (MSFT:Nasdaq) subsidiary WebTV; Stephen Luczo, the investment-banker-turned-CEO of disk-drive maker Seagate Technologies (SEG:NYSE); and Bill Campbell, chairman of personal-finance-software maker Intuit (INTU:Nasdaq).
Not everyone to benefit from the out-of-nowhere rise of eBay, the San Jose, Calif.-based online auctioneer, is a Silicon Valley player. Tiny Pomona College, a 1,500-student liberal arts institution in Claremont, Calif., got out of its one-third stake in eBay almost as soon as it could and raised $10.6 million.
"This was just the luck of the draw," says Controller and Assistant Treasurer Robin Aspinall, who says Pomona's $700 million endowment is invested in 32 VC funds. For better or worse, the eBay money won't be going toward a new library or gym on Pomona's campus because the proceeds must be reinvested in the endowment. That means the eBay largesse won't help Pomona's recently launched $150 million fundraising campaign.
Perhaps the college should approach its fellow eBay shareholders for a handout.
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