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VENTURE CAPITAL
20-1 The challenges of financing entrepreneurial growth companies
20-2 Venture capital and private equity financing
20-3 The organisation and operations of venture capital and private equity
companies
20-4 International markets for venture capital and private equity
AMAZON REDEFINES E-COMMERCE, BUT FOLLOWS A TYPICAL FINANCING
PATH FOR AN ENTREPRENEURIAL COMPANY
Since its founding in July 1994, Amazon.com, Inc.
has emerged as one of the prototypical successful
companies of the Internet age. It quickly established
itself as the premier online retailer of published
materials, offering several million titles in a variety
of languages. In 1999, Amazon began expanding
its online offerings to include music, auctions, toys,
electronics, travel and numerous other products and
services. By 2011, amazon.com was selling products
to customers in over 200 countries with total
revenues approaching US $37 billion.
In addition to being one of the great success
stories to emerge from the ‘dot-com bubble’,
Amazon offers a classic example of creative
corporate finance. Launched with a US$10,000
cash investment and a US$15,000 loan from Jeffrey
Bezos, the company’s founder and CEO, Amazon’s
early growth was fuelled, in part, by credit card
loans drawn on Mr Bezos’s personal account. In
July 1995, one year after amazon.com went online,the company secured private equity funding from
Silicon Valley’s top venture capital company (Kleiner
Perkins Caufield Byers), and less than two years later,
the company executed one of the splashiest initial
public offerings of a very splashy decade. Investors
who purchased amazon’s shares at its IPO price of
US$18 per share experienced a one-year return of
more than 400%. The private equity investors (whose
weighted average share purchase price was a mere
US$0.56 per share) received an astronomical total
return of more than 15,000%. Amazon.com’s shares
surpassed the US$200 mark in May 2011, which
translated into a market capitalisation of over
US$90 billion. By April 2015, the share price
exceeded US$445, giving the company a market
capitalisation over US$200 billion.
Sources: The information on Amazon is drawn from the prospectus for the
company’s IPO, the company’s web site (http://www.amazon.com), the web
sites of CNN Money (http://www.money.cnn.com), Quicken (http://www.
quicken.com), Yahoo
(http://www.yahoofinance.com) and various published reports.