Extreme VC: The Tale of the Tacoda Tattoo
Some entrepreneurs complain that their venture-capital backers aren’t good for much beyond forking over the cash. But, of course, many VCs stand staunchly by their portfolio companies, joining them in the trenches when the going gets tough. And when Rich Levandov, a general partner of Cambridge-based Masthead Venture Partners, journeys to the Big Apple in a few weeks, he’ll be taking commitment to a portfolio company to a new extreme. Having lost (as you’ll see, “lost” is a relative term here) a bet with the founder of Masthead-backed Tacoda, Levandov will check into an East Village tattoo parlor to have the company’s logo emblazoned forever somewhere on his body.
“I’m not quite happy about this, but I’m going to go through with it,” is Levandov’s less-than-gleeful description of his situation. But whether you see this as a case of investor macho-ism gone awry, or simply of a different kind of bond between a VC and his entrepreneur, you’ll have to admit he’s a man of his word.
Some essential context: Tacoda is an online advertising company that specializes in behavioral targeting—serving up relevant ads based on a website visitor’s actions. AOL bought the company in July for some $275 million.
Now, here’s what went down concerning the tattoo.
“I led the first institutional round in Tacoda back in ’04,” Levandov reminisces. Tacoda founder and chairman Dave Morgan was also the founder of Real Media, a pioneering online ad network. “As I got to know him in the due diligence,” Levandov continues, “he showed me that he had the company logo of Real Media tattooed on his body, on his leg.” It turned out that Morgan had at some point vowed to his Real Media team that if they hit certain numbers, he would get the tattoo (not sure how that came about).
“I thought that was just hysterical,” Levandov continues. “So I made the commitment to him that I would do that…that if Masthead returned 10 times their invested capital on that first investment, I would have the company logo tattooed on my body.”
Now, Levandov is a clever guy, and he didn’t make the tattoo offer willy-nilly. Being a previous investor in Internet advertising ventures, he knew that valuations had dropped dramatically for such media companies. As he puts it, “4x is the new 10x, so I figured it was a pretty safe bet.” And even if Tacoda did bring a 10x or greater return on Masthead’s original $5 million investment, he rationalized to himself, “I probably would be happy to get a tattoo.”
Fast-forward a few years to Tacoda’s sale to AOL and a recent meal Levandov shared with Morgan. As Levandov recounts, “Dave reminded me…that now it was time to pay up.” (It must be related that Morgan gallantly said that he, too, would go under the needle if Tacoda brought that 10x return.)
“Right now, as we speak, he is making plans,” says Levandov. “In the next couple weeks Dave and I are going to go out to dinner, have some wine, a drink or two, and then go over to the tattoo parlor and get ‘Tacoda’ tattooed somewhere on our bodies.”
Levandov is not above looking for loopholes. “I get to pick the spot,” he says, stressing that location was not part of the original bet. Neither, apparently, was size. “I get to pick the point size, too, so I don’t know how big it’s going to be.”
The site selection is critical. Where will the venture capitalist put his new tattoo (his first, by the way)? Well, Morgan’s Real Media tattoo is perched on the side of his calf, a few inches above the ankle, says Levandov. “I like that spot,” he says. “You can show it to people without, like, dropping their jaws—and you can hide it easily with pants or socks.” (That’s the kind of strategic thinking that entrepreneurs hope for when they give up equity to their VCs.)
Now that he’s committed, Levandov seems to be talking himself into liking the idea. “It’s kind of a cool logo,” he says. Besides, he adds, “Maybe I’ll be the first VC that made such a commitment to an entrepreneur and lived up to it.”
And so the story would have ended…until I got an e-mail from Morgan, who seemed to leave the door open for letting Levandov off the hook. “I’ve been through this before and at Real Media more than one of the folks that were going to do the tattoo didn’t in the end,” he said. “I am confident that we will, but I would like Rich to have a little ‘cooling off’ period to be sure that he wants to do it.”
Now, that’s an entrepreneur getting down in the trenches to protect his VC.