Tumblr Deal Said to Reap Spark, Union Square $192 Million

Tumblr Inc.’s $1.1 billion purchase by Yahoo! Inc. returned $192 million to two of its biggest venture backers, a person familiar with the matter said, disputing an estimate by research firm PrivCo.

Spark Capital and Union Square Ventures invested $13 million apiece, according to the person, who asked not to be identified because the information isn’t public. That represents about a 15-fold return for Spark, headquartered in Boston, and New York-based Union Square.

PrivCo, which earlier this week projected that the firms reaped a 50-fold return, lowered its estimate to about $198 million, Chief Executive Officer Sam Hamadeh said in an interview. Tumblr still remains among the biggest payouts the two firms have collected from stakes in New York startups. Union Square and Spark have spent about a decade supporting New York startups, from Foursquare Labs Inc. to Skillshare Inc.

Union Square, founded in 2003, and Spark, which opened two years later, each put $350,000 into Tumblr in 2007, the person said. In 2008, both invested $2 million, followed by $2.5 million apiece in 2010. The firms kept making identical investments, up until Yahoo’s offer for Tumblr, the person said.

Of the 10 startups listed as portfolio companies on both Union Square’s and Spark’s websites, seven of them are based in New York, including Foursquare. One is in Canada, while the most notable of all, Twitter Inc., is in San Francisco. Spark recently opened a New York office as well.

PrivCo Revisions

Tumblr is the largest venture-backed purchase for a New York company, according to research firm CB Insights. The second-biggest was Yahoo’s $680 million acquisition of Right Media Inc. in 2007, the researcher said in an e-mail.

David Karp, Tumblr’s 26-year-old CEO, is getting $209 million from the sale to Yahoo, according to PrivCo.

Hamadeh said PrivCo struck an earlier projection that Spark’s Bijan Sabet and other early investors made $77 million from the deal. All of Sabet’s investments were made through Spark, Hamadeh said. PrivCo’s estimated return, which is based on $13 million in funding from each venture firm, includes money for those who served on Tumblr’s board, he said.

Sequoia Capital, which joined the group as part of a $30 million financing round in 2010, gets $217.8 million from the deal, PrivCo said in the updated numbers.

Union Square’s Fred Wilson said PrivCo’s original figures were inaccurate in a post on Hacker News.

Wilson and Brad Burnham are managing partners at Union Square. Spark Capital was founded by Todd Dagres, Santo Politi and Paul Conway, according to its website.

A representative at Spark declined to comment, while Union Square didn’t respond to a request for comment.

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