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Voice - Monday, October 1, 2007

Skype No Viagra For eBay

The facts came out today that Skype founder Niklas Zennstrom is stepping down from his CEO post at Skype and that eBay is taking $1.4B in write-offs and charges related to the Skype acquisition. What is funny about this announcement is that it is fairly easy to make both arguments that either eBay was duped or that Skye founders and investors got shafted.

How could Skype have been shafted? eBay is only going to pay $530M of the $1.7B earnout. If you are in the Skype camp, you thought you were going to get $4.1B and now you find out you are going to get much less. Probably you blame eBay for not doing their part to make the Skype-eBay dream work. VC Ed Sim uses the Skype example to tell "company founders to be wary of performance based earnouts unless you get significant value upfront." Perhaps if Skype had been bought by another suitor it would have done better with more up-front and less earnout.

The more common argument is that eBay led by Meg Whitman are fools who don't get tech were easily duped by Skype and its VCs. Team Skype new there were never worth anything like $4.1B and the earnout was just theater.

For the venture sector at large its a reminder that mega deals can go sour. We hear again and again what a great deal News Corp. got on its MySpace deal and about how Yahoo screwed the pooch by not buying Facebook when it had the chance at an earthly valuation. Skype will be the new case in point for corporate development guys to pass on big deals and for founders and investors to pass on high earnouts.

Read - BeyondVC