Counterpart VC
- Patrick Eggen led the early stage corporate venture fund at Qualcomm when he was introduced to Eric Yuan, founder and CEO of Zoom.
- Eggen and his team were hesitant to back Zoom because the company wasn't profitable and the round was tied to an $18 million valuation, Eggen told Business Insider.
- According to Eggen, Yuan's commitment to building the business and his efficient approach to fundraising convinced Eggen to invest just 48 hours after meeting at a local coffee shop.
- Qualcomm Ventures ultimately participated in Zoom's $6 million Series A, $6.5 million Series B, and $30 million Series C before the company went public on April 18 with a market cap around $9.2 billion.
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Patrick Eggen knows he made the right bet on Zoom, a video conferencing platform that soared 81% in its market debut last month.
Back in 2012, he wasn't as sure. Eggen, who was a VC at Qualcomm's in-house venture arm at the time, had agreed to meet the founder at a local coffee shop.
On paper, everything about Zoom and cofounder Eric Yuan met the checklist of reasons not to invest: The startup was competing in a market crowded with giants, it wanted a rich valuation, and Yuan didn't fit the mold of a stereotypical young tech founder.
"It's easy for someone to turn Eric down because his English wasn't perfect, he wasn't in his 20s or 30s, and he wasn't a CEO before," Eggen told Business Insider.
Yuan was in the process of raising funds for Zoom's Series A, which would value the company between $15 million and $18 million. According to Eggen his investment team at Qualcomm Ventures balked at the valuation especially considering Yuan had yet to turn a profit.
"The value was one we really cringed on," Eggen said. "There were all the obvious reasons to politely decline, and we almost completely passed based on the valuation."
Zoom is one of several tech startups among a recent parade of high-profile IPOs including Pinterest, PagerDuty, Lyft, Uber that have all entered the public markets with valuations in the billions or tens of billions of dollars. While it's easy in hindsight to see the wisdom of investing in these companies as small startups, Eggen's story shows how easy it can be to miss out on the next big thing.
"The best investments are the most polarizing," said Eggen, who is now a founding partner at Counterpart Ventures. "They're not obvious, and they're not obvious for a precise reason. You need to be right when everyone else is wrong to get outsized returns. There is always a vocal minority of three or four people in the room who had utter conviction to back an idea. It's easy to say just say no or pass."
It all comes back to the founder
"In retrospect we were fortunate in making the right call but it all goes back to Eric," Eggen said of Zoom cofounder Yuan.
Zoom Zoom CEO and cofounder Eric S. Yuan
Despite the ambitious valuation Zoom was seeking, Eggen said he was intrigued by Yuan and the product he had built. The video conferencing space was crowded with major players like Microsoft and Google and other startups were leasing developer tools from the companies they were trying to usurp.
"Eric developed his own mutli-device video codec, and since he developed it, he could develop a much better product on mobile and across all devices and geographies," Eggen said. "He wasn't beholden to anyone. He translated these non-trivial technical advantages into a business advantage, and it wasn't obvious to folks. A lot of people passed on him because he had built it himself."
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Eggen said the epiphany happened when his early-stage investment team at Qualcomm, which was spread over seven regions, started using Zoom for conference calls. Before Zoom, Eggen said trying to get his team together was a lot like "going to the dentist," and he was firmly convinced of Yuan's vision.
When you really believe you need to lean in
Qualcomm ultimately joined Zoom's $6 million Series A, and participated in the company's Series B and C rounds according to Crunchbase data. Eggen's team never led a round, which he said is one of his biggest regrets with the investment.
"When you find a winner or really believe, you need to really lean in," Eggen told Business Insider. "Even though this is the most attractive return for Qualcomm Ventures in a single investment, we could've realized significant multiples on that if we had put more capital in."
Zoom's public offering on April 18 was one of the single best performing tech IPOs of 2019, soaring 81% on the first day of trading and minting Yuan a billionaire. The company that Eggen debated investing in at an $18 million valuation now has a market cap of $19 billion.
Looking back, Eggen told Business Insider that backing Zoom and Yuan felt like a sure thing. But for every successful investment, venture firms like Eggen's have dozens of less successful bets, and Eggen wanted to analyze what about the Zoom investment worked well and what didn't to hopefully replicate its success.
"It wasn't a no brainer at the time," Eggen told Business Insider. "I see too many investors that, when they have a winner and there's a massive liquidity event, they like to say it's clairvoyant. We do a lot of post mortems for investments that don't work, but it's also worth doing that for ones that do work out as well so we can learn from them and continue improving."