[Chapter 45: Shares Secured]
"John, this time it's not me reaching out to you, but our very own 'Saint' has come knocking. As for the specifics, I'll let Mr. Leighton fill you in," Don Valentine said as everyone settled in. He smiled and pointed toward John before sitting back silently, clearly eager to watch the show unfold.
John was speechless and could only think to himself, 'None of these folks are straightforward. Not one of them!'
"Oh, John, it looks like your 'Saint' nickname is starting to spread beyond Yahoo! Soon enough, Silicon Valley will be buzzing with stories about you," John Doerr remarked with a grin.
"Hey Mr. Doerr, long time no see. That's just rumors folks started. If I were really a 'Saint,' I'd be showing up at the Vatican right now," John said, laughing at his own joke.
Everyone burst out laughing, sizing up John. His youthful appearance was definitely deceiving.
"Alright, getting back on track, Don said you wanted to talk to us. From what I gathered on the call, are you interested in Netscape?" Jim Clark chimed in after hearing John's earlier remarks.
"Since I'm here at Netscape, you probably already know where I stand. I'm bullish on Netscape's future. So, before the IPO, I'd like to buy a portion of Netscape's shares. Think of it this way -- I'm practically showing up on your doorstep asking to be bought out," John said with a shrug, jokingly.
"Mr. 'Saint,' thank you for valuing Netscape. We're pleased, and we welcome your investment. But I have a proposal, if you're interested?" Jim Clark added.
"Oh, please go ahead," John nodded encouraging him.
"We also believe strongly in Yahoo!'s potential. We could offer a 1:1 exchange ratio, swapping Netscape shares for Yahoo! shares. Would that interest you?" Jim suggested.
"I'm sorry, Jim, but let me be frank. Compared to Netscape, I'm more confident in Yahoo!'s future. So let's just drop the conversation about exchanging for Yahoo! shares. Now, let's focus on your planned Netscape IPO price. If it's viable, I'd like to buy in directly. That could give Netscape a strong start on its roadshow, right?"
In his mind, John thought, 'Swapping my Yahoo! shares? Dream on. Netscape would be worth maybe a few billion tops after its 1998 acquisition, while Yahoo! peaked near a hundred billion. Even a 1:10 swap would be a bad deal for me.'
He was well aware that if he cashed out all of Yahoo! at its peak, he'd be looking at close to a ten-billion-dollar fortune. Saying that out loud was mind-boggling.
"Alright, then let's have a representative from Morgan Stanley, Netscape's IPO underwriter, provide some details," Jim said, noting John's outright rejection of his proposal. Though slightly disappointed, Jim focused on Netscape's promising future.
"Hello everyone, I'm Neil. Morgan Stanley has already filed the S-1 registration statement with the SEC. We've begun mobilizing all our resources to help Netscape get through the process swiftly.
We expect to complete it by July or August, followed by a roughly 7-10 day roadshow, with the IPO itself planned for August.
The initial target offering price is $14 per share. Of course, this is just a preliminary figure. The final price will depend on market conditions leading up to the launch.
Our plan is to issue 5 million shares for trading. Morgan Stanley is confident Netscape will have a successful IPO. Thank you!"
"In that case, I'd like to purchase 3 million shares of Netscape stock at your offering price before the IPO. I hope to have your support on this. Naturally, I want shares that I can sell at any time," John said eagerly after hearing Neil's update.
He almost shouted internally -- $14 was incredibly cheap.
What John didn't realize was how shocking his direct offer to buy 3 million shares at the offering price was to everyone else. It was almost unheard of, since pre-IPO shares usually sell below the offering price.
Being an ordinary guy in his previous life, John was naive about the intricate nuances of the market.
Given his 3 million shares out of 5 million total, the rest of the shares would have to come from existing shareholders. If John directly took 3 million shares, only 2 million would remain for public trading -- too little for a healthy IPO.
Moreover, buyers worried that if John dumped all 3 million shares at once, Netscape's stock price could plummet to junk status.
The room buzzed with nervous chatter.
"I understand your concerns. But rest assured, we can set conditions. For example, I won't be allowed to sell any shares until the stock price doubles from the offering price. No dumping large amounts at once. I don't want my shares to become worthless either.
Also, I'm not seeking any board seats or management roles. This is purely a straightforward investment. No need to worry -- just consider if this investment suits Netscape's interests."
John's willingness to forgo any control won them over.
After discussing briefly, Jim stood up.
"Then Mr. 'Saint,' welcome to Netscape. On behalf of the company, I officially accept your investment. The 3 million shares will come out of my personal holdings," he announced.
From this, John learned that Jim was Netscape's biggest shareholder -- he held nearly half the stock after the IPO.
As for the well-known Marc Andreessen, his share was not much more than John's.
It made sense. Jim had put in the cash, so he held the reins. He had initially invested $5 million to co-found Netscape with Marc Andreessen and held most of the shares accordingly. Even after bringing in venture capitalists, Jim still owned nearly half of Netscape's shares before going public.
Jim's thinking was simple: selling 3 million shares wouldn't change his majority control. His $5 million investment had already grown to a potential $42 million payout.
Given John was buying at the offering price, Jim saw no reason not to sell.
Once Netscape went public, Jim would see another huge gain, while maintaining enough shares to control the company.
Why wouldn't he make the deal?
Since both sides agreed, all that remained was for their lawyers to draft the contract and for them to sign.
John spent $42 million to buy 3 million shares from Jim with a condition: he cannot sell shares until the price doubles, but afterwards, he can cash out anytime.
He gave up any board spots or operational roles, treating it purely as a stock investment.
...
As the contract was signed, the room erupted in applause. John let out a sigh of relief -- he'd finally boarded Netscape's ship to wealth.
Shortly after, Don Valentine proposed buying 1 million shares. Netscape, recognizing Don's influence, agreed. These shares also came from Jim's stake, turning Jim's original $5 million into eleven times more -- an incredible return.
Of course, John wasn't jealous. His investment in Yahoo! had been just as spectacular -- an initial $500,000 investment that now leveraged to $50 million through borrowing and stock holding.
For John, this marked a triumphant conclusion to his third, and perhaps most significant, Silicon Valley journey.
*****
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