VCs Forced Zappos CEO To Sell To Amazon Rather Than IPO

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Amazon (AMZN) announced yesterday that it would acquire Internet shoe-seller Zappos for more than $800 million.

It’s not the fate Zappos CEO Tony Hsieh envisioned for the company.

PeHub reports that Tony wanted to IPO, but Zappos’s VC backer, Sequoia’s Michael Moritz, craved liquidity and forced the sale.

This jibes with a survey we reported that showed, more than anything else, VCs these days are “very worried about exits.”

PeHub reports:

The decision to sell hot online shoe retailer Zappos to was more in line with the interests of Sequoia Capital than the company’s CEO, according to two sources close to the company.

One of the sources says Zappos was financially strong enough to wait for the IPO market to recover, if it chose to go that route. The source, a Zappos shareholder who has seen the company’s income statement reports, said that the company did over $1 billion in gross revenue in 2008, $625 million in net revenue and had an EBITA greater than $40 million.

Zappos had raised $49.1 million from venture investors since its inception, most of it from Sequoia, according Thomson Reuters (publisher of The Zappos shareholder, who says he has seen the company’s capitalisation tables, says Sequoia had a 3x or 3.5x liquidity preference associated with the shares it purchased.

“When Mike [Moritz, a GP with Sequoia] came in, he came in at a high valuation, but he countered that with a very high liquidation preference,” the shareholder says. “It puts management on one side of the table and investors on the other. Then there’s always pressure to sell the company.”

At least two sources who do not hold board seats, but are directly involved with Zappos, indicated that Moritz and Zappos CEO Tony Hsieh came into conflict about the company’s future. Moritz, the sources say, wanted Zappos to sell while Hsieh wanted to remain independent.

Continue reading at PeHUB >

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