Karp's Midas Touch

I came upon this ditty. New England Development scored BIG in a venture capital investment in online retail site, Retail Convergence.

By Scott Austin


Venture capital investors in Retail Convergence Inc. already scored once when they sold this owner of private-sales site Rue La La to GSI Commerce Inc. in 2009. Now about 16 months later, those same investors may be in the money again.

EBay Inc. said today it's acquiring e-commerce services conglomerate GSI for $2.4 billion, or $29.25 a share, representing a 51% premium to Friday's closing price.

That price also represents a 44% premium to GSI's $20.38 stock price on Nov. 17, 2009, when it closed the acquisition of Retail Convergence for $92 million in cash, $94 million in stock and up to $170 million in earn-outs.

Retail Convergence, which operates Rue La La, an invite-only private sale site that specializes in high-end fashion, previously raised $25 million in a single funding round in April 2008 from Breakaway Ventures, General Catalyst Partners, Mugar Enterprises and New England Development.

At the time, General Catalyst Managing Director David Fialkow told VentureWire his firm didn't view the transaction as an exit, and that the firm planned to hold on to the GSI stock. "A significant portion of our success will come in the success of the combined company," Fialkow said.

Assuming these investors held on to that stock, the 4.6 million shares are now worth about $134 million, which adds to the $92 million in cash distributed earlier for a total of $227 million.

Then there's the complicated $170 million milestone component which consists of three payments based upon the company reaching certain adjusted Ebitda numbers for each of the fiscal years 2010 through 2012 ending Jan. 2. It's not clear whether GSI made any payments for the already ended fiscal 2010 and 2011 years, nor what will happen now that eBay will divest 70% of Rue La La and another GSI property, ShopRunner, to a newly formed holding company.

We're waiting to hear back from Retail Convergence's original investors for more clarity. No matter, the deal highlights how venture capitalists can still make out in a big way well after the dust has settled on the original deal.

 Bottomline, the ownership stake for which NED and others paid $25 million returned nearly 10 times that amount.