Capital Chaos

Kayak (Norwalk, CT) raised $193M - of which we are told $175M was used to purchase rival Sidestep (the remaining $18M will fill the coffers of Kayak).  The deal which really puts Kayak ahead of the pack as it relates to travel information (flights, hotels, pricing etc).  According to TechCrunch, Sidestep generates about $35M in revenue while Kayak does roughly $50M.  Both companies have very strong backing from their respective VC’s and each had previous rounds of funding in excess of $25M.  The interesting piece of this transaction is the group that funded the deal.  Unlike typical regional investing, this raise by Kayak included Sequoia, Accel, General Catalyst, Trident, Norwest and newcomers to the deal, Oak Investment Partners, Lehman Brothers Venture Partners and debt lenders Silicon Valley Bank and Gold Hill Capital. 

The depth of the participants comes at a time when more banks/VC’s are tighter on the “bigger” deals and I believe we are going to start seeing a greater trend of co-investments to mitigate exposure - especially given what is going on with the lending crisis.  These co-investment deals have positive and negatives.  First off, the positive is that the recipient of the capital will have a greater asset base to feed off of in terms of networking and leverage.  The negative is you just inherited multiple opinions and since each bank/vc has their own measures of their respective investment, it can become tricky.  My guess is given the experience of the investors in this deal, the biggest winner will be Silicon Valley Bank on the debt side - depending on the terms of the convert.  Given how much longer it is taking companies like Kayak to mature (even if this is being set up as a not too distant IPO), taking on debt is something I will often run from as a company with the limited history Kayak does usually makes any growing debt the equivalent of a poison pill.  However, Silicon is co-investing/lending in this deal with some sharp partners so my presumption is that a Lehman Ventures or Oak isn’t going to get bullied around in the deal - depending on their exposure.  My only surprise is that AOL, Leader Ventures and Saints Capital did not seem to participate in this latest round and they were original investors in Sidestep early on.  I always like to watch who comes back in for a second shot at the pie given their initial position.  You either are going to firm up your original investment or don’t feel there is value in a secondary.  In this case because it was an acquisition of Sidestep, I would’ve expected all of the original guys to jump in - if they were given the chance to.

I really like the inclusion of Oak in this deal as they really know how to leverage the strategic aspect of their investments and I think that will only benefit Kayak and the other investors as well.

I would expect the announcement of an IPO for Kayak by third quarter of ‘08.  Hopefully they can swim upstream!