A CEO who negotiated directly with Jeff Bezos reveals what Amazon is like as a strategic investor and buyer

• As well as being one of the biggest companies in the world, Amazon is also a powerful corporate investor and acquirer, and now owns $2.1 billion in other firms' stock.
• Most recently, it led a massive $575 million investment round in British food delivery startup Deliveroo.
• Business Insider spoke to Simon Calver, a British investor and former CEO of LoveFilm, which Amazon invested in and eventually acquired, to find out what it's like having such a behemoth on board.
• Calver said Amazon is a deliberate and careful investor, handpicking the people and technologies it thinks are a good fit for its business.
• Click here for more BI Prime stories.

What is it like to have one of the most valuable companies in the world become your strategic investor?

Amazon is an active corporate investor, ploughing money into other companies directly or via its Alexa Fund. According to the firm's most recent quarterly filing from May, it now owns $2.1 billion in stock from other companies.

That number will have gone up after Amazon led a $575 million investment into British food delivery startup Deliveroo in May 2019.

Amazon hasn't really explained the rationale behind the deal but the thinking is that Deliveroo and its network of food delivery riders might be an interesting solution to the "last-mile" problem in logistics.

Superficially, it looks like good news when a cash-rich tech giant takes an interest in your startup. But Amazon's history suggests the reality can be more complicated.

In 2016, Amazon invested in a startup called Nucleus, which had created an Alexa-powered video intercom. A year later, Amazon launched an awfully similar product, the Echo Show. The CEO of Nucleus, Jonathan Frankel, was furious and told CNET that his own investor had "probably copied us."

Amazon isn't always so aggressive. The firm invested in doorbell startup Ring, again through its Alexa fund, and then acquired it for $1 billion in one of its biggest-ever deals. That worked out pretty well for the startup and its investors.

Amazon's rumoured acquisition bid and then investment into Deliveroo follows a similar pattern to a much earlier deal with another British company: LoveFilm.

Business Insider spoke to Simon Calver, a British tech investor for BGF Ventures and the former chief executive of LoveFilm.

Amazon first tried to buy LoveFilm in the early 2000s, invested in 2008, then successfully bid again to buy it for $317 million in 2011. LoveFilm became the basis of what is now Amazon Prime Video, Amazon's popular Netflix rival.

Calver was the man who negotiated with Jeff Bezos and the rest of Amazon's leadership over the deal, meaning he has fascinating insight into what it's like to sit across the table from the company when it wants to open its wallet.

"Amazon do have a long-term vision for their business, and what they want the component parts of that to look like. So they are quite deliberate in their thinking in terms of what tech, what people, what capability they need," he said.

"There are other corporate acquirers who are a lot more opportunistic and would think, 'Let's have their capabilities and see what we can do with it.' Amazon will typically have a very well thought-through and detailed plan, so they, therefore, don't enter into anything lightly even though they are sat on large cash piles."

The company that became Amazon Prime Video was originally a strategic investment

LoveFilm was a precursor to Netflix, and was hugely innovative at the time. The firm pioneered the concept of posting rental DVDs to people. It sounds outdated now, but was a popular idea.

LoveFilm was itself the composite of a bunch of different British companies all essentially doing the same thing. The various competitors merged under the LoveFilm brand in the mid-2000s and went on to dominate the film rental space in the UK and much of Europe. Shortly after these mergers, the new entity fended off an early acquisition offer from Amazon.

According to Calver, LoveFilm wouldn't have sold so early into its journey "unless it was a silly price." It also believed that it was changing how people watched films at home.

Calver believes that what happened next was unique in Amazon's history.

Amazon had its own DVD rental business, which was mostly second to LoveFilm across Europe but did have a strong customer base in Germany. LoveFilm decided to approach Amazon about a deal, and eventually acquired its UK and Germany DVD business.

"We approached them to combine forces in 2008," Calver said. "They became a shareholder in us, and we joined Amazon DVD and LoveFilm. We acquired the customers, but we didn't really acquire the people. I don't know of any other situation where Amazon has sold a customer set, that was unique."

The deal involved Amazon becoming LoveFilm's biggest shareholder (with more than 35% of the business) and putting in some additional cash. Amazon's then-global media boss, Greg Greeley, took a board seat. The ensuing competition investigation also cost LoveFilm almost £1 million in legal fees.

The situation is not unlike Deliveroo's. Amazon was the biggest investor in Deliveroo's latest round, has a board seat, and is likely now a major shareholder.

This can have risks. "You're in a situation where you potentially have your major strategic acquirer sat around your board table," said Calver.

As both a strategic investor and potential acquirer, such a powerful shareholder can "hold you hostage" down the line - especially if they're the only potential buyer. Calver adds that Amazon never did abuse its power. "They never played that card. It was never acrimonious. However it was a risk," he said.

Having Amazon on the board was awkward as LoveFilm considered alternative exit strategies like an IPO

Around 2010, LoveFilm's streaming service took off and became available on third-party platforms like the Xbox. It also began considering its exit strategy. This is when startups sell to an acquirer or go public so its original investors and shareholders can get their money back.

"Our preferred exit route was through IPO," Calver said. But given LoveFilm was evolving its DVD rental business and developing streaming, it had to work out how it was going to get hold of enough cash to buy content.

Netflix has a similar problem and burns through considerable cash so it can buy original content like "Bird Box".

Calver said: "What became increasingly apparent is that if we needed to raise $100 million every two years to invest in digital content as a relatively small, sub-scale public company, that would always be difficult.

"So we began to look at strategic options, ideally a partnership with somebody who would be a content owner, where we could use the distribution of LoveFilm to distribute their content."

As Netflix would go on to do, LoveFilm began talking to Hollywood studios.

Amazon, meanwhile, was considering its strategy around what would become Amazon Prime Video. The success of LoveFilm's app on different digital platforms like Xbox, and its strong customer set, made it a tempting acquisition proposition once again.

"It was being a successful, growing digital business that triggered the interest," Calver said.

Several complex things began happening simultaneously.

LoveFilm kicked off talks with Amazon as a possible acquirer. At the same time, it began exploring an IPO, and mulling other potential acquirers - all while Amazon was on its board. Meanwhile, some of LoveFilm's own shareholders were trying to cash out of the business by selling their shares to Amazon in a secondary trade, while unaware Amazon was also trying to buy the whole company.

"This is where having a strategic on board can be a challenge," said Calver wryly. "When you're at an early-stage startup, managing your internal shareholders can be as much a challenge as managing an external acquirer. I think that's where [LoveFilm cofounder] Saul Klein and I smile about the experiences we had together.

"We had some members of the shareholder base who were not aware we were negotiating with Amazon for a larger deal, who'd been offered less money from Amazon for their shares and we would not let them sell at a lower price, because we knew we were negotiating a deal at a higher price for them and couldn't let them know."

These shareholders took out their frustration on LoveFilm's leadership, Calver added. After some months of haggling, Amazon was successful in its bid. Ultimately, Calver said, the outcome was the right one for LoveFilm.

Bezos told LoveFilm's executives: 'It's go big or go home time'

He stayed on for a year at Amazon post-acquisition ("I took the orange") and credits Amazon for freeing up cash to build up the business. He recalled one meeting where he and other execs pitched Jeff Bezos directly for investment to buy content.

"They really committed to building content, so we could compete," Calver said. "There was one meeting with Jeff Bezos, where we put forward a content proposal plan [which needed] $100 million over two years. And he was like, 'It's go big or go home time, we acquired you to be big.' It was off you go, here's a $100 million. If we'd tried to raise that in a public market, it would have taken forever."

As for what this means for Deliveroo, Calver says that LoveFilm ultimately helped Amazon build a new product: its streaming video business.

"The question for Deliveroo is whether it becomes an Amazon product, a branded Amazon product, or be maintained as a separate product and service," he said. "I don't know their strategic decision, but the more integrated it is to their core proposition, the more likely it's going to end up being Amazon."