My Thoughts on the Skype Settlement: Winners & Losers Scorecard

The final results are in: eBay and private investors led by Silver Lake Partners have struck a deal with Skype founders and JoltID, the technology company controlled by Skype founders Niklas Zennström and Janus Friis. They are also transferring the ownership of intellectual property needed to make sure that Skype works as an Internet telephony service. More than 500 million Skype subscribers can breathe a sigh of relief. Skype founders will be making an investment in the new entity and will get a 14 percent stake in the company. The deal is likely to close in the fourth quarter. Those are the facts. Below the fold you can read my winner-and-loser scorecard on this deal.

Found Money: Zennström and Friis are the real winners here. For a few hundred thousand in legal bills, they have not only managed to wipe out an investor competitor, they have shifted the focus away from the ignominious failure that was Joost. They have turned their ownership of a P2P technology into yet another payday and, most importantly, they are now sitting in the catbird seat to reap the rewards of Skype again. Verdict: Winners

0131chip.jpgDouble-Dipped: In order to get the deal done, both the investors and eBay took a haircut. Investors now control 56 percent of Skype while eBay’s stake is down 5 percent to 30 percent of the new Skype. There is a lot of spin in the press release issued by Skype, but the fact remains as I pointed out on the day this deal was announced, Zennström and Friis had them by the curlies. It was clear that this deal wasn’t going to get done without their blessing.

“Skype will be well positioned to move forward under new owners with ownership and control over its core technology,” said eBay President and CEO John Donahoe. “At the same time, eBay continues to retain a significant stake in Skype and will benefit from its continued growth. We look forward to closing the deal and focusing on growing our core e-commerce and payments businesses.”

Poor John is stuck being the mop-up man. eBay (s EBAY), thanks to the stellar work of its previous management team including Meg Whitman, currently running for governor of California, is paying twice for its mistakes. If my previous employer, Business 2.0, was still publishing the 101 Dumbest Things list, I would make eBay’s original Skype deal as the No. 1 dumbest thing…ever! Verdict: Losers.

Index-ed to Nothing: Now let’s look at this great spin quote:

The investor group will no longer include Index Ventures, which has withdrawn from participation. Commenting on its decision to withdraw, Danny Rimer of Index Ventures, said: “We are pleased that Skype will now be able to put litigation behind it, and we wish Josh Silverman, his team and the Skype investors well in continuing to grow a great business. Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction.”

Index Ventures and Mike Volpi were the architects of the deal from day one, and so no, they didn’t opt out of the agreement. No one opts out of a deal for which they are happy to bend a few rules. What it means is that they were hustled out, and that tells me two things: This was way, way personal. I have heard it from my sources that there is no love lost between the various entities involved and the lawsuits just brought the hostilities out in the open. Verdict: Losers

Making a Marc: Earlier this morning I spoke with Marc Andreeseen of Andreessen Horowitz and asked him about the deal. “We wouldn’t go through this for just a company, but this is Skype, so from our standpoint it was worth going through,” he said. He pointed out that his firm is all about founders and “we like founders being part of the company.” He added that there is “no emotional baggage and we didn’t take this personally.”

This was a high-profile deal for a new fund. Given that Andreessen Horowitz bet so much of their fund’s total money on this deal ($60$50 million of $300 million), any successful conclusion is a win. Verdict: Winners

Silver Lake Partners: The rest of the investors can breathe easy that this got through. Those personal emails didn’t make pretty reading. The fact that they don’t have to deal with Volpi and Index might be a blessing in disguise. Verdict: Winners

Canada Pension Plan Investment Board: Are they still there…oh cool! Verdict: Meh!

No Silver Lining?: One person who I totally feel for is Silverman, the current CEO of Skype. He gets to run a company which will have the looming presence of its founders.

Whatever the press spin might say, the new investor group is like a poisoned well. It will be a polarized group, always looking over their shoulders. Silverman is going to need to keep a lot of people happy, and those board meetings with nearly two-dozen people aren’t going to be fun, either. But as Biggie Small once said:

“It’s like the more money we come across, the more problems we see.”