Greylock Leads in Internet Deals With Groupon Stake

Greylock Partner's Reid Hoffman
Reid Hoffman, partner with Greylock Partners. Photographer: Noah Berger/Bloomberg

Greylock Partners’ stake in Groupon Inc. lands it in an exclusive Silicon Valley Club. It’s one of two venture-capital firms whose partners own stakes in at least four of the top multibillion-dollar Web startups.

Before investing in Groupon, Greylock was among the first institutional investors in Facebook Inc. and LinkedIn Corp. Greylock partner Reid Hoffman was an early investor in Zynga Game Network Inc. and remains a director. Among venture capitalists, only Andreessen Horowitz’s Marc Andreessen has a comparable stake in the leading Internet companies.

Founded in 1965 by Bill Elfers and Dan Gregory, Greylock was based on the East Coast until moving its headquarters to Silicon Valley from Boston in 2009. The firm, now based in Menlo Park, California, missed out on the hottest Internet companies of the 1990s. That’s when Sequoia Capital, Kleiner Perkins Caufield & Byers and Benchmark Capital were funding Google Inc., Yahoo! Inc., Inc. and EBay Inc. Greylock has more recently emerged as the leader.

“Greylock has pivoted from the traditional, old-school VC on the East Coast to the cool, new kid on the West Coast,” said Jeff Clavier, founder of SoftTech VC, an early stage venture firm in Palo Alto, California. It’s now the “Internet bellwether that has positions in a lot of hot companies,” he said.

Demand for Stakes

Joining the ranks of investors in promising startups such as Groupon isn’t easy, even for established venture-capital firms. That’s because there’s heavy demand for a stake in businesses with a proven growth record. New companies also are discerning about adding investors that can influence strategy through their ownership.

Unlike Greylock’s earlier targets, Groupon was already worth billions before the firm got involved. The provider of Internet daily-deal coupons is valued at about $4.75 billion after Greylock joined firms including Andreessen Horowitz and Kleiner Perkins in a $950 million round of financing this week.

Greylock’s investment in Groupon was in the tens of millions of dollars, said a person familiar with the matter, who declined to be named because the amount isn’t public.

“Commerce is a particularly interesting area that’s being reinvented by social now, and Groupon is a leading breakout player in that,” said David Sze, who joined Greylock as a partner in 2000. The business “will only continue to accelerate to a place that is far bigger than anyone can imagine,” he said.

There are five Internet startups with valuations of more than $1 billion, according to Nyppex LLC, which specializes in so-called secondary transactions. They are Facebook, Zynga, Groupon, Twitter Inc. and LinkedIn.

New Partner

In addition to consumer startups, Greylock is expanding its portfolio of companies focused on technology for businesses. The firm said in a statement today that Frank Slootman, former chief executive officer of Data Domain Inc., has joined as a partner to “invest in data center startups, particularly in the virtualization, networking, storage, cloud and enterprise-application sectors.”

Slootman joins Greylock after running a company that was backed by the venture firm. Data Domain first sold shares to the public in 2007 and was bought by EMC Corp. for $2.1 billion two years later.

“I dealt with Greylock for many years from the other side of the table,” said Slootman, 52, in an interview. “I had the opportunity to take the experience I gained in our company and more broadly make it available to companies that have similar aspirations.”

LinkedIn Investment

In 45 years, Greylock has raised 13 funds and currently has more than $2 billion in pledged capital from its limited partners. The firm closed its most recent $575 million fund in 2009 to back startups in consumer Internet, software and computer services.

The same year, Greylock hired Hoffman as a partner. Hoffman, 43, founded business-networking site LinkedIn in 2003, and the next year Greylock led a $10 million investment in the Mountain View, California-based company. LinkedIn is now worth $2 billion, according to secondary exchange SharesPost Inc.

While at LinkedIn, Hoffman invested in San Francisco-based Zynga in 2007 and joined the board. The company, creator of online games such as “FarmVille” and “Mafia Wars,” is valued at $5.8 billion on SharesPost.

The LinkedIn funding was led by Sze, 44, as was the 2006 investment in Facebook, when the social-networking site was worth $500 million. The Palo Alto, California-based company is now valued at 100 times that, after Goldman Sachs Group Inc. led a financing round at a $50 billion valuation, three people familiar with the matter said this month.

Other Greylock investments on the Web include Internet-radio service Pandora Media Inc., Internet-television company Revision3 and home-rental site Airbnb Inc.

Andreessen’s Firm

While Greylock is into its fifth decade, Andreessen just opened his firm in 2009 after a career as a technology entrepreneur. He’s on the board of Facebook, was an early investor in Twitter and LinkedIn, and his firm has invested in Zynga and Groupon. Andreessen Horowitz was also among a group of investors that purchased the majority of Web-phone service Skype Inc. from EBay in 2009.

Accel Partners was an early investor in Facebook and Groupon. Kleiner Perkins invested in Zynga in 2008 and joined the latest financing rounds in Twitter and Groupon. Sequoia was the first venture firm in LinkedIn, while Benchmark bought a stake in Twitter in 2009. None has been as active in the leading Internet startups over the past six years as Greylock.

“We were not geared up that way in the early days of the Internet,” Sze said. “Other players were early-stage focused on the consumer space better than we were and took their eye off the ball. They’re somewhat scrambling to figure out that it’s bigger and longer than they expected.”

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