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Google Buying Nest Is Cozy Deal for Venture Firms

By Adam Satariano
January 14, 2014 4:04 PM EST 12 Comments
Nest
Nest

Nest Labs Inc. isn’t just helping homeowners maintain a cozy environment. Google Inc. (GOOG)’s $3.2 billion acquisition of the digital-thermostat maker is also making venture-capital firms very comfortable.

Kleiner Perkins Caufield & Byers, one of the earliest backers of the company co-founded by former Apple executive Tony Fadell, invested $20 million in Nest beginning in 2010 and will see a return of about $400 million, a person with knowledge of the deal said. Shasta Ventures, another early Nest backer, will boost its original investment by more than 15 times, said another person, who asked not to be identified because the gains aren’t public. Google’s venture arm had also invested in Nest.

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The deal is contributing to greater confidence among venture-capital firms, which often bet on companies before they have revenue or even a product and count on big deals to make up for money lost on the vast majority of startups that fail. Venture capitalists also reaped big gains in 2013, with at least 10 firms generating more than $1 billion each in returns from initial public offerings and acquisitions, according to filings and data compiled by Bloomberg.

“It’s a very significant return to the fund,” said Rob Coneybeer, a managing director at Shasta Ventures who led the Nest investment. He declined to provide specifics.

Big Gains

The gain on the Nest investment is one of the largest to date for Shasta Ventures, whose other payoffs have included Intuit Inc. (INTU)’s acquisition of Mint in 2009 and Citrix System Inc. (CTXS)’s purchase of Zenprise.

Kleiner Perkins didn’t make any of its partners available for comment. Scott Rubin, a spokesman for Google, declined to comment.

Google rose 2.4 percent to $1,149.40 at the close in New York today.

The acquisition of Nest, almost double what Google paid for YouTube in 2006, also provides the biggest payback to date for the search provider’s own venture-capital arm. Google Ventures, which invested in Nest and operates as an independent company within Google, will keep the returns, a person with knowledge of the matter said.

Google Ventures referred questions to Nest, which declined to comment on the financing details.

For Kleiner Perkins, the deal comes after the venture firm missed out on early investments in Internet companies such as Facebook Inc. (FB) and Twitter Inc. (TWTR)

Another big winner from the acquisition is Fadell, who declined to say how much of the company he owned.

“I wanted to focus on the differentiation for our customers and realize the vision sooner,” Fadell said. “I didn’t want to focus on building out infrastructure -- which is not differentiating, allowing competitors to come and start to nip out our heels. I want to focus on what we’re best at.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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