VC Cliche of the Week

Flip_1I’ve got Bubble 2.0 on my mind this week.

And so I am going back to Bubble 1.0 and thinking about what worked, what didn’t, and what we could have done differently.

One thing that worked great in Bubble 1.0 was the Quick Flip.

That’s when you invest in a company and within a year, you’ve sold out for a nice return.  Generally its around 3 to 5x.  And that’s a good return in anyone’s book.

We did that at Flatiron a lot in 1999.  Some of the names that come to mind are Vertical One to S1, Gamesville to Lycos, Abuzz to The New York Times, Patagon to Banco Santander, Liveprint to Kinkos, and Starbelly to Halo.  I am sure the list is longer than that.

In most cases the Quick Flip is made to a large established company that is looking to get in on some new technology (S1, New York Times, Banco Santander, Kinkos, Halo).

Jerry was the master of the Quick Flip at Flatiron.  In 1999, I think he did 3 or 4 of them.

I’ve never been a big fan of the Quick Flip.  It goes against my natural bias that you should go into every investment looking to build businesses.  The Quick Flip mentality is not a good one because what happens if the large companies decide they can build instead of buy and then you wake up and realize that you haven’t built a business and then what do you have?  I think the Quick Flip is part of the broader "no business model" problem that we had in spades in Web 1.0 and I am seeing more and more in Web 2.0.

But, and this is a big but, you must always recognize that venture backed companies are not sold, they are bought.  When the large company comes knocking on the door and offers a good deal, you should generally take it.

So, in summary, I think the Quick Flip mentality is dangerous, but when offered a Quick Flip, its often a good idea to take it.

Attribution – the photo at the top of this post comes from Flickr.  It was tagged "flip".