I did learn a few journalist skills and habits in my year as COO of ReadWriteWeb. One was to be wary of being spun. The other was to dig below the surface.
“Sequoia Capital, the Silicon Valley venture capital firm, is in advanced discussions to invest $50m into London start-up TransferWise, in an investment that would value the money transfer company at close to $1bn, said two people involved in the fundraising.”
That headline comes from the Financial Times (FT) which is as well respected for quality journalism as you can get. (As a courtesy to my readers I don’t link to behind the paywall content).
When the deal was not immediately announced, my analysis was that there were four possible stories here:
- The deal really was being negotiated and is still is being negotiated; so “watch this space” for an actual tombstone type announcement. Problem with this story: you would expect confirmation within a couple of days.
- The deal really was being negotiated and fell apart. If so, my “inner journalist” wants to know what happened, the juicy blow by blow account of high stakes poker.
- Somebody (“two people involved in the fundraising”) leaked it in error and it was never really in “advanced discussions”.
- Somebody (“two people involved in the fundraising”) leaked it on purpose in order to move along negotiations that were stalled.
The announcement yesterday of a deal with Andreessen Horowitz indicates that Scenario 2 (and maybe 4) is probably true. This is an announcement of a done deal. The amount raised has gone up a bit to $58m and most of the headlines reference the $1 billion number.
The question is, what price did Transferwise pay for this headline?
It is easy to raise money at a $1 billion valuation. It is all a question of the liquidation preference terms. Say you want $50m at a $1 billion valuation. As long as your company is worth at least $50m, you offer egregiously high liquidation preference rates and you get the deal done.
Valuation is meaningless until realized via exit.
I have no inside knowledge of this negotiation, just enough knowledge of deals like this to know that there is an interesting story.
Whatever the negotiation story, this deal does confirm two things:
- Smart American VC money is coming into European Fintech. First Sequoia with Klarna, then General Atlantic with Adyen and Saxo, now Andreessen Horowitz with Transferwise.
- There is great consumer demand for lower FX rates. To raise Series C you have to show rapid growth.
If growth continues at a rapid pace, preferences become a footnote in history. If growth stalls, those preferences can hurt entrepreneurs. This is a high stakes game.
[…] It is during the early stage of a venture where the whole ecosystem needs to be in one place. That is why top tier Silicon Valley VC firms such as Sequoia, Benchmark and Andreessen Horowitz will only invest in teams that are physically close enough that they can meet face to face regularly when the venture is young. When a venture is more mature, it becomes feasible to manage your investment remotely with lots of emails, metrics dashboards and phone calls plus the occasional face-to-face board meeting. Once a venture is mature enough, these VC funds morph into Growth Equity funds and compete to invest wherever on the globe the venture is based (for example, Sequoia investing in Klarna and Andreessen Horowitz investing in Transferwise). […]
[…] I recalled big ads at London City Airport for Transferwise after seeing ads on the London Underground for […]