Behind the Scenes: EquityZen Tackles the Tumblr/Yahoo! Deal

Phil Haslett
Jun 12th, 2014
With the recent acquisition of Tumblr by Yahoo! for $1.1b in cash, EquityZen sought to dig beyond the headline numbers and analyze Tumblr's valuation relative to its user base and employee count throughout the years.

More importantly, we wanted to know:
If I joined Tumblr as an employee in a given year, what would my equity be worth? 
If I could have invested in Tumblr in a given year, what would my investment be worth?

To do this, we followed the history of Tumblr's fundraising and valuations.

To trace the dilution of the founder's shares, let's assume Tumblr opened up shop with 1,000 shares issued and outstanding.

Inception: Tumblr is founded in 2007.

Valuation: $0
Money Raised: $0
Users: 0
Shares Outstanding: 1,000

No surprises here: founder David Karp is just a man with an idea and 1,000 shares of (then) worthless Tumblr stock.

Series A: Tumblr raises $750k on 10/31/07 (link)

Valuation: $3 million
Money Raised: $750,000
Users: ~100,000
Shares Outstanding: 1,333

In less than a year, Tumblr has built a user base of 100,000 users. Karp opts to raise $750,000 in exchange for a 25% stake of the post-money valuation, valuing Tumblr at $3 million. Also, we can see that this increases the outstanding shares to 1,333: the investors providing the $750,000 Series A funding own 333 new shares, or 25% (333 / 1,333) of the Shares Outstanding.

Series B: Tumblr raises $4.5 million on 12/31/08 (link)

Valuation: $15 million
Money Raised: $4.5 million
Users: ~500,000
Shares Outstanding: 1,905

Commensurate with its growing user base, Tumblr is showing 500% valuation growth. Note the number of new Outstanding Shares was calculated the same way as in Series A.

Series C: Tumblr raises $5 million on 4/20/10 (link) (link)
Valuation: ~ $30 million
Money Raised: $5 million
Users: ~4.5 million
Employees: 11
Shares Outstanding: 2,286

Tumblr's user base begins to accelerate.

Series D: Tumblr raises $30 million on 11/19/10 (link) (link) (link) 
Valuation: $120 million
Money Raised: $30 million
Users: ~9.7 million
Employees: 16
Shares Outstanding: 3,048

Tumblr is now a $100 million company.

Series E: Tumblr raises $85 million on 9/27/11 (link)
Valuation: $800 million
Money Raised: $85 million
Users: ~30 million
Employees: 50
Shares Outstanding: 3,410

In its final fund-raising round, Tumblr enters the stratosphere with an $800 million valuation, boasting 30 million users.

Sales: Yahoo! buys Tumblr for $1.1 billion cash on 5/19/13 (link)
Valuation: $1.1 billion
Users: ~108 million
Employees: 175
Shares Outstanding: 3,410

Tumblr shareholders reach a "liquidity event", getting cash for their shares.

Now let's take a look at the type of returns experienced by shareholders and investors at different stages:

Time Of Investment Share Price Final Share Price Return
Series A $2,250 $322,588 142.37 x
Series B $7,875 $322,588 39.96 x
Series C $13,125 $322,588 23.58 x
Series D $39,375 $322,588 7.19 x
Series E $234,609 $322,588 0.38 x

For instance, every $1 invested in Tumblr at Series A returned $142.37 in profit.

As for the founder, David Karp reportedly received $250 million for his 25% stake at the time of sale to Yahoo! (link). However, wouldn't the 1,000 founders shares have a value of $323 million? After all, the 1,000 shares were 29.3% (1,000 / 3,410) of the Shares Outstanding at the time of sale.

The likely explanation for this difference is the Equity Stock Option Pool (ESOP) that the founder had to create at the time of the Series A round. By backing out Karp's 25% stake at the time of sale, 4.3% of the Shares Outstanding were tied to the ESOP (about 147 shares). This would equate to roughly 15% of the Founders Shares (147 / 1000), a typical ESOP allocation.

Think EquityZen got their math wrong? Other thoughts? Please leave a comment below to discuss. We like discussions.

(Note: EquityZen obtained all valuation, funding, employee and user data from publicly available sources.)
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