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In a business in which the best investment opportunities flow to asmall number of firms with big reputations, the prestige boost thatAccel Partners, Greylock Partners and Meritech Capital have gainedfrom their Facebook investments dating back to 2005 and 2006 couldpay dividends for years to come. "The person, often the firm too, gets that patina," said LisaEdgar, who tracks a range of venture investors in her workevaluating venture-capital firms for fund-of-funds firm Top TierCapital Partners. "It perpetuates. There's this deal-flow andnetwork effect." The dynamic is straightforward, but powerful. Entrepreneurs see afirm, or an individual partner, that not only made a great call butnow has a special relationship with a company that could help theirnascent business. That means that the venture capital firm getsfirst dibs on some of the most promising deals, which vastlyincreases their odds of success. And their link to Facebook means in some cases an easyintroduction, or even a deal down the road, for the venturecapitalists' portfolio firms. Take Facebook's $1 billionacquisition last month of photo-sharing service Instagram - justafter Greylock funded it. Other venture capitalists also start paying more attention to whatthe successful firm is doing, and although they would be loath toadmit it, they may become more inclined to back those samecompanies at richer valuations in later rounds of financing. The limited partners who provide the funding for venturecapitalists in turn see both the big financial return from theinitial investment and the fringe benefits to other portfoliocompanies, and become more inclined to support the successfulventure capital firm in the future. 'GIVES THEM CONFIDENCE' Josh James, the former chief executive officer of the softwarecompany Omniture, is just the sort of entrepreneur that most anyventure capital firm wants to back - he had sold Omniture to AdobeSystems for $1.8 billion in 2009. He had his choice of funders when he was building his new softwarecompany, Domo, and went with Benchmark Capital last year in partbecause of Benchmark Capital partner Matt Cohler's close ties toFacebook. James said he has sealed a deal to hire more than one employee bytelling them that likely they eventually would get to present toCohler, and he has closed several sales because the Facebookconnection makes it clear to customers that Domo is up on thelatest technology. "It gives them confidence," he said. Earlier this year, Domo raised $20 million more from InstitutionalVenture Partners. At education network Edmodo, which took $15 million in funding fromGreylock and Benchmark last year, the Facebook connection "bringscredibility to us, too," CEO Nic Borg said. Borg said he believes several education companies developedapplications to run on Edmodo's platform that they might nototherwise have done so. At business software company Couchbase, CEO Bob Wiederhold says theupside lies in large part on the introductions that Accel's KevinEfrusy, an investor in his company since 2010, can make. Thatincludes to Bobby Johnson, director of engineering at Facebook andnow an advisory board member at Couchbase. "He can help surround the company with good people," Wiederholdsaid, referring to Efrusy. THE BIG COMEBACK Facebook's earliest backers are sitting on a veritable fortune.Meritech's and Greylock's slices of Facebook will be worth morethan $1 billion each. But Accel Partners, which initially invested $12.7 million inFacebook at a $98 million valuation back in 2005, the year after itwas founded, is clearly the big winner. Come the IPO, the currentstake of Accel and its affiliates will be worth $6.3 billion,assuming a mid-point stock price of $31.50. It plans to sell aportion of that stake worth about $1.2 billion, according to theIPO prospectus. Accel won in more than one way. It had been struggling in the wakeof the dot-com bust that began in 2000, and the firm's fund that in2005 first started investing in Facebook and other companies turnedAccel's reputation around. Its latest funds, including last year'sAccel XI, have been heavily oversubscribed by investors. The deal was also a career-maker for Accel's Efrusy, who was noteven a partner when he made the case for a big investment inFacebook at what was considered a very high valuation at the time.Efrusy went on to back social-discount company Groupon early on, in 2009, well before its IPO raised $700 million lastyear. For Greylock Partners' David Sze and Meritech Capital's PaulMadera, both of whom jumped into Facebook as part of a $27.5million round in 2006 that valued the company at $500 million, thedeal was not their first big success. Sze was an early investor in LinkedIn , which raised $352.8 million in an IPO last year, and Maderabacked enterprise-software giant Salesforce.com before it wentpublic in 2004. Cohler invested sweat equity by leaving a job at LinkedIn in early2005 to become Facebook's seventh employee before becoming aventure capitalist. At his new employer, Benchmark Capital, whichdoes not invest in Facebook, he led a $7 million investment lastyear in Instagram. Despite their extraordinary success, none of the early Facebookinvestors appears ready to rest on the laurels. "You have to be humble about whether you can do it again, andthat's what keeps you hungry," said Greylock's Sze. "If you look at the cycle, every four to six years another companyof (Facebook's) caliber gets created," said Chi-Hua Chien,currently a partner at Kleiner Perkins and a former associate atAccel who first brought Facebook to the Accel team's attention. Herattled off a list of names including: Amazon , in 1994; Google , in 1998; and Facebook, in 2004. The outsized importance of the occasional monster deals means thatventure capital firms sometimes find it worthwhile to get in - evenlate in the game. Andreessen Horowitz, a high-profile new firm, drew some snickerswhen it bought Facebook shares in 2010 at a very high valuation.But that investment stands to show a tidy profit, and with partnerMarc Andreessen sitting on the Facebook board, it is not hard tosee the benefit for the firm. (Editing By Jonathan Weber and Will Dunham). The e-commerce company in China offers quality products such as China Multi Touch Screen Monitors , China Industrial LCD Displays, and more. For more , please visit Touch Screen LCD Displays today!
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