News broke last week about Bono’s potential cash windfall, thanks to his Venture Capital Company, Elevation Partners, investing a few years back into a small internet site, Facebook. This would be just a secondary headline if it wasn’t for the amount of money that Bono was going to reap from his investment, close to a billion and a half dollars. When the news hit the Internet, Twitteres could not get enough of the story. In fact, the redundancy of retweeting this story became mind numbing. However, it was his firm, Elevation Partners, which would reap the 1.5 billion dollars for which Bono would probably get about 10% or about 150 million dollars.
To me, I couldn’t comprehend making that sum of cash at one sitting until I broke it down into terms I could understand. The challenge was how I could I put this I.P.O. into language everyone else could understand. As we are about to embark on summer, it came to me, my childhood memories of running a lemonade stand. Once I translated Bono’s investment, into Facebook, into those terms, it made sense.
So, I am eight years old and I have a lemonade stand on a semi-busy street. Business is slow in the late morning, as the sun begins to brighten the sky, but I feel positive with my pitcher of tasty, refreshing citrus drink and glasses ready for my prospective customers. A few stop by and my pitcher is beginning to lessen its capacity. However, I’m making money and I have income. The major issue is I need manpower to cover my stand as I go get more lemonade. So, I ask my best friend, coercing him with an incentive that I will give him ten cents for every cup he sells. My financial dilemma begins as I now have an employee and I need to buy more lemonade in order to keep my customers happy. My Mom, who helped me start up the company has run out of spare time and is now onto her own chores. I needed help, cash for one thing and how to use my time wisely.
As I left for the store with cash from my morning sales in my pocket, my uncle just happened to stop by and asked me about my business. I told him that I had just enough cash to get one gallon of lemonade. My uncle opened his wallet and gave me thirty dollars, which was more than enough money to keep my stand going until the middle of the afternoon. However, during my venture back from the store, I noticed there were kids in the park that needed my lemonade. Now, I needed to branch my lemonade stand business out by hiring another friend, create another distribution channel and build a customer base. I went back to my uncle with a return of his initial investment, plus a request more cash infusion into my now small corporation, which he graciously capitulated.
I know it’s a simplistic way to look at Bono’s situation, but it works and we can understand it. If my uncle Greg didn’t infuse my start-up with the thirty dollars, I wouldn’t have been able to grow my business. I would have been using my own profits to buy lemonade, one gallon at a time, while wasting time running to and from the store, let alone any thought of opening a satellite stand. Therefore, his small investment, which was big for a lemonade stand, kept growth up with demand, which is really what Elevation Partners did by their initial investment into Facebook at 93 million dollars. Both investors took risks in each scenario, but something gave them the faith that in the end they would reap a reward.