The Story of Jeff Bezos’ $250,000 Investment into Google in 1998
Written by Jay Turo on Monday, October 5, 2009
To be filed firmly in the categories of the rich get richer and it does usually make sense to be both lucky and good, this week’s New Yorker notes that Jeff Bezos was one of the early investors in Google.
Yes, thatJeff Bezos. Founder of Amazon.com. #33 on last year’s Forbes’ 400 with a net worth of over $8.7 billion.
The story is this - in 1998 when Larry Page’s and Sergey Brin’s Google offices were a Menlo Park, California garage - Bezos invested $250,000 of personal funds into the fledgling search engine in a $1 million follow-on investment round.
When Google went public in 2004, that $250,000 investment translated into 3.3 million shares of Google stock. At Google’s IPO that represented a stock share position worth over $280 million!
While Bezos does not disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position of over $1.5 billion.
Why did Bezos invest in Google? In his words, “…There was no business plan…They had a vision. It was a customer-focused point of view.” And more tellingly he adds, “I just fell in love with Larry and Sergey.”
In addition to being a tale to which the normal reaction is to just say “wow,” Bezos’ Google investment offers a number of great lessons for aspiring, private company investors:
1. He Thought Long Term. Even though Google has been the fastest rocket ship growth company in the history of capitalism, it was still SIX YEARS from Bezo’s investment in the company to liquidity. Private equity overnight successes simply do not exist.
2. He Got In Early. Sure, it would have been great to get into Google at its IPO price of $85/share, especially as the shares are up over 535% since then. But Bezos got in, after adjusting for stock splits, at EIGHT CENTS PER SHARE!
Talk about leverage. That translates to a 112,000 percent increase from investment to IPO, and then if he held onto the shares to another 535% on top of that.
3. He Invested in People. At the time of Bezo’s investment, there were a large number of very well-funded and far more successful search engines already on the market. Remember this was 1998 not 1994. Yahoo. Alta Vista. Lycos. Excite. Looksmart. Webcrawler. Infoseek. Inktomi and GoTo to name just a few.
But Bezos was attracted to Page and Brin as people, as technologists, as leaders. And obviously their customer-centric focus really tracked the way that Bezos looks at the world and is embodied in the Amazon customer service experience.
So while a business opportunity, in its abstract is great, evaluating the people leading a business is a FAR MORE RELEVANT investing best practice.
4. He Took a Shot. For every Jeff Bezos who invested in Google, there are stories of literally dozens of investors that were presented with the opportunity and did not.
This of course does not mean that the probability of any early stage private company investor having a Google-like success in their portfolio is anything but very low, but it does mean that it is far greater than the ZERO percent likelihood of success of those who did not invest.
As they say, you can’t win if you don’t play.
5. He Got Lucky. As hard as it is for many to accept, luck is a key, and sometimes the key, variable in successful investing.
As opposed to fighting or getting philosophical re this reality, a far better question to ask is “How can I improve my likelihood of, for lack of a better turn of phrase, getting lucky?
Derren Brown, the British magician, recently did a TV show where he accurately predicted the winners in 8 horse races, getting a member of the public to place increasing amounts of cash on each successive race.
Revealing his "trick" it turned out he was running a pyramid scheme where he also did the same with different horses and different members of the public, each with their own film crew.
In the edit he only showed the one overall winner.
What frustrates me about these types of articles is they edit the story for the sake of an ending. How many other companies did bezos invest in? Is there more than one (albeit huge) case study to bear out his approach? And how many "horses" has he backed and lost on?
I would wager that Jeff Bezos hedged his bets. At $250K (small change to Bezos) it was a good shot for nothing - almost nothing. I wonder how many of these bets has he placed.
Just one winning bet (let alone an astronomical winner like Google) would more than make up for all the other losses (in Yahoo or AltaVista - maybe).
You're missing the point John and Sufipoet. Aside from being smart and disciplined, he was lucky. That said, of course there were times when he was unlucky. Maybe he was unlucky more times than he was lucky. Who knows?! What's important is that when all is said and done, the money made is far greater than the money lost.
You'll never win all the time so just focus on winning most of the time and making it to the [proverbial] championships. Jeff Bezos is a champion and yes, that makes him lucky.