How WhatsApp turned Sequoia's $60M in $3B💰| Extending your runway📰| The story of Square⬛
Boost your startup growth in a 5-min read.
👋 Hey everyone and welcome to this week’s round up.
I’m Hugo Rauch, the writer of this newsletter and my goal is to help founders accelerate their growth, successfully fundraise and find inspirations from startup stories. If I can help you, hit me up by replying to this email! 💬
Summary
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How WhatsApp turned $60M in $3B for Sequoia 💰
The story of Square with co-founder Sam Wen ⬛
Extend your runway (reply to this email to get the document) 📰
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WhatsApp + Sequoia 💰
In 2011, WhatsApp needed money to grow. But the founders had a very unique fundraising strategy.
They wanted a single VC on the cap table.
Their vision convinced Sequoia Capital to invest $8M. This was a huge bet in this unknown messaging app.
But WhatsApp was different from other startups.
They refused the spotlight or the attention.
Not even a sign outside the offices.
Competitors rushed to build platforms.
They wanted to be seen and heard.
But Jan and Brian (the founders) were focused on delivering a clean, lightning fast communications service.
They were doing for messaging what Skype did for voice and video
However, WhatsApp was against Ads.
And their revenue wasn't so strong.
In 2013, they were doing $20M in ARR.
At this stage they needed more money to scale.
And they raised $52M at a $1.5 Billion.
Look at the ARR multiple here.. crazy!
Again, only one VC on the cap table: Sequoia.
That's when everything changes.
Facebook was scared of this growing app
WhatsApp could have been a Facebook killer.
The giant of the time decided to acquire them.
Here are the 4 reasons:
→ 450 million active users
They were the fastest growing company.
Every day, they had 1M sign ups.
→ 32 engineers
WhatsApp was lean.
This was a legendary crew.
Building a reliable, low-latency service.
They processed 50 billion messages every day.
→ $1 per year for the service
“No Ads! No Games! No Gimmicks!”
That was their guidelines.
Users had one free year before paying $1 per year.
→ $0 in marketing
All of the above was done without marketing.
The application was great and going viral.
Not a penny on user acquisition.
Facebook acquired WhatsApp for multiple billions
The transaction was broken down into:
-$4B in cash
-$12B in Facebook shares
-$3B RSU for founders and employees
Sequoia's owned 18% of WhatsApp. Which they paid $60M. This is a 50x return on their investment.
This is the greatest partnership between a VC and a startup that I've ever seen. Such an unconventional approach to the world of fundraising. But it paid off.
Thank you for reading! Share this post with a friend to support my work! 📈
Square with co-founder Sam Wen ⬛
Podcast of the week 🎧
This week, I released an episode with Sam Wen, the co-founder of Square and general partner at Green Visor Capital.
Topics in today's episode 🎧
How a $2.5k glass art sales is at the origin of Square
Starting from Jack Dorsey's flat in San Francisco
Developing a reader using the headphone jack
Overcoming regulations and rules to launch
The challenge of competing with Amazon
Focusing on the experience (à la Apple)
Starbucks partnership and scale
the intense pace of a scale up
And much more 🚀
Listen on 🟢Spotify, on 🟣Apple Podcast, or on 🟠Substack.
Support the podcast by giving a 5✨reviews on Apple Podcast or Spotify. I’m giving a shoutout to everyone in my episodes!
How to extend your runway 📰
Reply to this email and I’ll send you the document! 👏
When fundraising becomes slower, you need to extend your runway. Here is a guide from Sequoia. 🌿
What is a runway and how to calculate it?
𝗥𝘂𝗻𝘄𝗮𝘆 = 𝗻𝘂𝗺𝗯𝗲𝗿 𝗼𝗳 𝗺𝗼𝗻𝘁𝗵𝘀 𝘂𝗻𝘁𝗶𝗹 𝘆𝗼𝘂 𝗿𝘂𝗻 𝗼𝘂𝘁 𝗼𝗳 𝗰𝗮𝘀𝗵
It’s your cash balance divided by your monthly burn.
For example:
→ you have $10M in cash
→ you spend $500k a month
→ $10M / $500k = 20 months
It gets a little more complex than that. Sequoia recommends calculating cash balance as:
→ 𝗰𝗮𝘀𝗵 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 = 𝗰𝗮𝘀𝗵 - 𝗱𝗲𝗯𝘁
Because debt is borrowed money.
It comes at a cost. And you have to repay it.
How do you use runway?
You should calculate it every single month.
Once it comes close to 12-18 months, start fundraising.
Especially in the current market where closing takes longer.
The good thing is: it gives you a target.
Investors are waiting for the next milestones.
Runway gives you a timeline.
How do you increase your runway?
The deck explains it well, the main idea is to:
→ understand your current spend
→ break it into components
→ prioritize the reduction in the matrix (slide 18)
→ set a goal and execute on it
Email me and I’ll send you the guide! 👏
Thanks for your support! 🙏
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Hugo 👋