The incredible venture deal that (almost) nobody seems to have heard of
If I were to ask you to name the best venture deal of all time in terms of pure cash on cash return, what would you come back with?
My bet would be you’d answer with the usual suspects: Accel’s 2005 investment in Facebook, KPCB’s deal for Google, or maybe Lightspeed’s more recent, highly lucrative bet on Snapchat. Those deals are now legendary in the Valley, and for good reason — they eventually returned their initial investment hundreds of times over (see below).
Yet one deal dwarfs them all, and it still somehow seems to float under the radar.
I’m referring to the South African media conglomerate Naspers and its investment in Tencent. In 2001, years before Silicon Valley’s eyes had turned to China, Naspers paid $31M for a roughly 47% stake in Tencent, which was then a scrappy instant messaging startup; Tencent is of course now one of the most influential tech companies in the world and that stake is currently worth over $60B. That means Naspers has realized a nearly 2000x+ return on its initial investment.
In other words, the bet Naspers took on Tencent has turned out to be one of the most successful venture deals in history.
Why isn’t this story written in the venture capital history books like the other bets above?
Part of the answer likely comes down to geographic myopia — it’s natural for the VCs to remember successes from products built in their hometowns that they know well and likely use. It’s quite another to get excited about a corporate venture investment from a South African publisher in a nascent Chinese social network.
But for me, this insular mindset is a warning sign for smart investors — as we clamor to find the next white space within early stage technology, we’d do well to remember that it’s a big world out there.
Naspers has certainly internalized that lesson. With its stake in Tencent as a driver, it can invest much more aggressively than its core financials would typically allow, giving it the ammunition it needs to enter make corporate venture investments in potential “winner takes all” verticals in these emerging markets. Several early investments have been positive: it owns a sizable stake in Flipkart, which some are tapping to replicate the Alibaba model in India, and also invested in the Russian internet portal Mail.ru.
Will they find another opportunity on the scale of Tencent? Probably not, but they’ve seen first hand that the search can be worth the effort.