‘Inside Rounds’ Used to Be Bad. Sequoia & WhatsApp Changed Venture Forever

Why Their Multibillion Dollar Outcome Flipped The Script

Pre-2014: Insider Rounds Are The Funding of Last Resort

Post-2014: Why Are Insiders Letting This One Get Out?

When WhatsApp took $19 billion and joined Facebook, the industry headlines moved quickly from the buyout itself to Sequoia’s masterful funding strategy of the startup. After publicly leading a Series A, the firm put another $50m+ into the startup in two subsequent insider rounds, neither of which were disclosed publicly prior to the acquisition. Collectively a lot of other VCs closed their laptops after reading the news, put on their Patagonia vests and took a brisk walk down Sand Hill Road while wondering how to deal with this new reality.

What was the big change? A firm had led two successive ventures rounds into a portfolio company. And they were Offensive rounds, not Defensive ones!

Up until this point the idea that your previous round’s investors did the funding on your next round was pretty verboten and when it did happen, it was capital of last resort. Like, the startup couldn’t get a new investor to lead around at terms that everyone liked so insiders decided to do the round themselves — writing the termsheet…