Anatomy of a Successful Venture Deal – PetSmart’s Acquisition of Chewy.com for $3.35 Billion

Recode published an article earlier today that PetSmart is acquiring Chewy.com for $3.35 billion in the largest e-commerce acquisition ever. This is a case where raising venture capital helped a startup grow significantly faster, resulting in a much larger and more valuable business when compared to growing organically. According to CrunchBase, Chewy.com started in the summer of 2011 and is less than six years old. Last year, Chewy.com did almost $900 million in revenue (source) and presumably will do over $1 billion in revenue this year.

For a venture perspective, this is a homerun. Let’s look at how the economics might play out:

  • Volition Capital invests $15 million in the Series A in 2013 (source) and buys ~25% (a guess) of the company (typical venture rounds are for 20 – 35% of the company)
  • Chewy.com goes on to raise a total of $236 million in equity over multiple rounds (source) resulting in dilution to the Series A investors (depends heavily on pro-rata participation)
  • Assuming the original Series A investment was diluted down to ~10% (a guess), that $15 million investment would be worth $335 million now (depends on earn-outs and other behind-the-scenes factors)
  • Turning $15 million into $335 million is a 22.3x return and likely returned more than the entire Volition fund

Congratulations to Larry at Volition Capital and the whole team at Chewy.com on the acquisition.

What else? What are some more elements of this successful venture deal?

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