Sequoia Made $248 Million From Zappos Sale


Zappos founder Tony Hsieh wrote a lengthy article on Inc. magazine earlier this month where he highlighted why he sold Zappos to Amazon.com. Below are some of the bullet points from the article.

- In summer 2005, Zappos turned 5 years old and the company felt like it was on track.
- Zappos put company culture above everything else which kept them distinguished as an online shoe retailer.
- Zappos paid 100% of health care premiums for employees.
- By 2005, gross merchandise sales were at $370 million, but they were not profitable yet–close to breaking even though.
- The plan was to hit $1 billion in sales by 2010 and go public.
- Jeff Bezos visited Zappos headquarters in 2005 and gave them an offer. Tony said no because he was worried about folding into Amazon.com operations and losing brand appeal.
- Bezos called Tony again in 2008. Zappos was doing $1 billion in gross merchandise by then–2 years ahead of schedule. Tony was pressured by VCs to take the offer seriously.
- Sequoia Capital invested $48 million into Zappos and was looking for a substantial ROI, especially in the economy at the time.
- Zappos also relied on a $100 million revolving line of credit for procuring inventory.
- Because of the company’s legal structure in 2009, there was a chance that Tony would be fired by the board if Zappos did not sell. CFO Alfred Lin and Tony even considered buying out the board of directors for about $200 million.
- However Amazon.com approached Zappos with the idea of letting them run independently.
- Zappos asked Amazon.com to make the deal all stock-based since paying in cash would seem like a complete buy-out. Tony preferred it that way so it would seem more like a partnership.
- The acquisition was closed on November 1 at a valuation of $1.2 billion. Sequoia made $248 million from the sale. The board of directors was replaced with a management committee that include Bezos, Tony, two Amazon.com execs, and two Zappos execs.
- In Q1 2010, Zappos sales are up 50% and several new employees have been added to the team (about 1,800 total employees).
- When employees log in to their computers, they are shown a random picture of a Zappos employee and are asked how well they know that person.
- Tony is working on a new book called Delivering Happiness: A Path to Profits, Passion, and Purpose.

[Inc. Magazine]

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