Officially, as major investors with board seats on companies that just went public, venture-capital firms aren’t supposed to talk about their IPO hits.But Sequoia Capital and Greylock Partners are letting their websites do the talking in the case of Palo Alto Networks, a security-hardware firm whose shares closed up 26 per cent today at $53.13 on its first day of trading.
Sequoia’s homepage is given over to a scrolling display featuring Palo Alto’s cofounders, as well as those of Kayak, an online-travel company which also went public today, and ServiceNow, which went public last month.
Greylock’s site features Nir Zuk holding a Palo Alto firewall over his head triumphantly.
We assume these guys’ webmaster had a backup plan if the offering went south. But it didn’t.
Palo Alto’s S-1 reported that existing investors, pre-offering, paid an average of $1.17 a share. So assume that Sequoia and Greylock invested about $16 million apiece across three rounds of financing from 2006 to 2008. Those firms’ stakes are now worth $732.5 million. (That’s a rough calculation, but the average share price is usually in the right ballpark.)
So call it a 45X return.
They may end up making more, if the stock continues up, since they didn’t sell any shares in the offering.
Sequoia and Greylock may end up distributing shares to their investors; holding onto shares after an IPO can further juice returns if the stock rises.
Sequoia made most of its investment through Sequoia XI, a fund which it raised in 2003. It also made investments in YouTube, which sold to Google for $1.65 billion, and LinkedIn, whose shares have soared this year, through that fund.
Venture-capital funds usually run for 10 years before winding up their affairs. So it’s a timely win.
This is how we’re picturing the scene on Sand Hill Road right now: