Hey, I'm Dan! I invest in startups at Madrona and write the DL, a weekly newsletter about tech in the Pacific Northwest

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Bessemer Investment Memos

VCs normally don’t share their investment memos, and the only “public” memo out there is Sequoia’s investment memo for YouTube’s seed round that was used as testimony in a lawsuit.


Last week, Bessemer shared several of their investment memos from their investments into companies like Shopify, Pinterest, Twilio, and LinkedIn. Tons of great insights into how investors evaluate companies, frame investment decisions, and structure deals.


Here are some interesting excerpts from the Shopify memo, along with my commentary:

Team - Investors often say the number one thing they look for in new investments is a great team. But in a memo, three flights to Ottawa to get to know the team were summed up by “We have been impressed by Tobi.”

We have been impressed by Tobi. He is a young, first-time CEO who is thoughtful, has good product and management instincts. Shopify’s 24 employees are located in Ottawa, Canada. Based on Shopify’s reputation in Ottawa as a local internet startup success story, and based upon Tobi’s reputation among the developer community, the company has been able to recruit some of the best development and design talent in Ottawa at 60%-70% of the cost of similar talent in Silicon Valley or New York.


Market - Instead of trying to overcomplicate a market sizing analysis, this memo just points to other companies that have built big businesses in a similar market to justify the market is big enough.

Shopify targets small and mid-sized brick & mortar retailers as well as people looking to start an online-only store to sell physical goods. Estimating the size of this market is difficult. However, the size of similar, but much more legacy and US/Canada-only businesses provide a proxy: Homestead (~85K customers), Yahoo Stores (~55K) and eBay ProStores (~30K). At the lowest end, Shopify targets at-home capitalists—the same audience as Etsy, which has roughly 80,000 active sellers generating $300mm in annualized gross merchandise value.


Product - This section lists a bunch of product features, but the important point is describing the customer problem Shopify tried to solve, and their philosophy on how to continue enhancing the product

Shopify is a SaaS application for setting up and running an online store. In many ways, its strength lies in its simplicity, which is ideally suited to small businesses. A non-techie can start taking orders from a professional-looking online store in a few hours after sign-up.

The Shopify philosophy is to build only those features into that most customers need most of the time.


Deal - Man, investing in a $100B+ company at a $25M pre-money is pretty awesome. Interesting to see that at the time of the deal, they were already looking for ways to increase their ownership by buying more shares

This is a deal for BVP to invest $5mm at $25mm pre-money, with a 13.5% option pool built into the pre-money valuation, 4% of which will be re-granted to existing employees. This Series A security is a 1x straight preferred. BVP will receive two of five board seats and will have the right to force a sale after 6 years.

In addition, we anticipate an opportunity to purchase $2mm worth of common shares at a 25% discount from a co-founder who left the company several years ago. The additional $2mm would increase our exposure to $7mm, but also increase our ownership to 31% at an attractive price.


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