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06/21/2007

Yahoo Buys Rivals From $75M More Than Their 2001 Offer

Yahoo apparently agreed to buy Rivals.com for $100M today and that brought me back down memory lane a bit, so I thought I would share.  In Q1 2001, Rivals was hemorrhaging cash and appeared to be on its last legs.  The site was still attracting a lot of traffic and producing very high quality content, it's just that their cost structure was way to high.  At the time, Yahoo stepped in an offered to buy Rivals for $25M in cash but they proposed a incredibly complex structure designed to somehow keep the near term losses off of their books.  That deal fell through (like so many "rescue attempts" did in 2001) and the company was basically liquidated by the VCs.

Fast forward 6 years later and Yahoo is laying out $100M in cash for a newly revived Rivals.  From what I understand, the founder bought out all the assets in 2001 and restarted the company with a non-bubble cost structure and mentality.  Six years later he is rich man and Yahoo is out an additional $75M because they let a bad cost structure distract them from the reality of a great product.

For me, a deal like Rivals reinforces some great investment lessons:

1)  Even if good products are damaged by bad business decisions, they are still good products.
2)  The time to buy is when everyone else is selling.
3)  You can always reduce expense more.
4)  Don't give up on a good product too soon.

Congrats to any of the original Rivals team for sticking it out.  That's what being a passionate entrepreneur is all about.

June 21, 2007 in Internet, Venture Capital, Wall Street | Permalink

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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.