Earlier today, new GitHub CEO Nat Friedman announced the completion of Microsoft’s $7.5b acquisition of the company. GitHub, which was founded in 2008, famously bootstrapped and avoided outside funding until July 2012, when it accepted a $100m Series A investment from Andreessen Horowitz (a16z) at a reported $750m post-money valuation. The software development platform only raised one additional round, when in July 2015, it raised a $250m Series B investment led by Sequoia Capital at a reported $2b post-money valuation, with participation from a16z, Thrive Capital, and IVP.
The acquisition was certainly a win for GitHub’s investors. In order to understand the magnitude of this success, Flux analyzed GitHub’s cap structure and performed returns analyses on the investments.
Series A
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Series B
Of the $250m Series B, we assume a16z exercised its pro rata rights, thus contributing $33.33m to maintain its ownership stake of 13.33% prior to the round (13.33% * $250m = $33.33m).
Axios reports Thrive’s investment in the Series B at $30m, and we’ll similarly assume IVP’s investment in the round to be the same. This implies that Sequoia’s lead investment amounted to $156.67m ($250m - $33.33m - $30m - $30m).
Flux Capacitor, LLC
Secondary
Axios also reported that Thrive boosted its stake in GitHub through “around $120 million of previously-unreported purchases of GitHub stock from early company employees – giving it a total ownership stake just south of 10%.” Techcrunch places this secondary sale roughly one year ago in October 2017. Assuming the secondary sale of common stock was completed at a 25% discount to the preferred share price, this implies Thrive acquired an additional 8% stake in the company via secondary sales.
Flux Capacitor, LLC
Exit
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The takeaway is clear: these are stellar returns, both on an IRR basis as well as from a cash-on-cash multiple perspective. Andreessen Horowitz returned a cool $1b to LPs after investing just over $133m, netting the firm a blended gross 7.50x multiple of invested capital. Its $100m Series A investment specifically returned 8.75x gross, while its pro rata Series B, along with the other Series B investors, generated a 3.75x gross return.
What is particularly fascinating is that despite not leading either the series A or B rounds, Thrive was the second largest investor in the company after a16z (under these assumptions) thanks to the shares it acquired in the secondary sale. Given the lower cost basis for the $120m in common shares in acquired, coupled with the timing (just over a year ago), Thrive produced an incredible ~367% IRR on its secondary investment, along with a 5.0x gross returns to investors. Not too shabby.
In the end, GitHub’s investors pushed some healthy returns to its LP’s repositories. If there are any questions/comments/thoughts, please reach out.