IBM stock is not exactly the high-risk, high-reward investment that Sand Hill Road venture capitalists usually seek. But Geoff Yang and Yogen Dalal have, essentially, managed to buy thousands of shares of Big Blue. Whistle Communications, which Yang and Dalal initially funded in 1995 ("Let's Make a Deal," March/April 1998), was acquired by IBM last June for an undisclosed sum.
"I would say it was a happy outcome, but not a euphoric outcome," says Dalal, MS '73, PhD '77, whose firm, the Mayfield Fund, made $20 million from its investment in Whistle. "Would we have preferred a monster IPO? Yeah, probably," adds Yang, MBA '85, of Redpoint Ventures. "But by any traditional VC standards, Whistle was very successful."
Yang and Dalal stress that Whistle, which makes all-in-one Internet servers for small businesses, was a well-managed company with a high-quality product; it simply lacked the necessary distribution muscle. IBM will fix that, Dalal predicts.
The VCs hoped Internet-service providers would refer their subscribers to Whistle. But it turned out that the providers were afraid Whistle would threaten their customer support functions, Dalal says. "We miscalculated," he adds.
Still, Dalal considers Whistle a decent investment for 1995. (Yang doesn't rank it quite that highly, but then he invested in Excite that year.) Back then, venture capitalists made more investments in medical devices and health care services, and a $20 million to $50 million return was "considered superb," Dalal says. Now that Internet and communications companies predominate, "everyone thinks in terms of $100 million to $500 million."
In fact, last fall Yang and five partners launched a new venture capital firm, Redpoint, to invest exclusively in Internet businesses. "It's probably a little higher risk, but it's going to reshape the landscape," Yang says. And if not, there's always IBM stock.
