Less than five minutes later, the room behind the glass went quiet.
Whether they had noticed the laughter from outside or simply reached their conclusion, the arguing stopped.
Within moments the same group of people were chatting and smiling as though nothing had happened, leaving anyone watching from the garage floor genuinely unable to believe what they had just witnessed.
Shortly after, Michael Moritz came out of the conference room.
It made sense that it would be him.
Everyone else in that room ran a company.
He was the most senior of the second generation figures, still building his name.
The errand was his by default.
“Everyone, the gentlemen inside have finished their deliberations and reached a position.
I’ll say this: it’s the fastest investment decision I have ever personally witnessed.
Yahoo has set a precedent today.”
“Then that’s the best possible outcome.
We all want this to go well.” Jerry Yang replied with a smile.
“Michael, since when did you become the one running messages?” John Leighton said from the side.
The helpless expression on Michael Moritz’s face produced exactly the reaction John Leighton had anticipated.
The laughter from the Yahoo team drew looks from across the garage.
Then everyone filed back into the conference room.
…
“Welcome back, gentlemen.
You could say you are fortunate young men.
We have, in principle, agreed to your funding proposal.”
Andy Grove’s opening words produced a visible ripple of excitement through Jerry Yang and the others.
“However, I haven’t finished.
In principle we agree, but there remain points of disagreement on the equity distribution and the current valuation.
Those need to be negotiated directly.
First, a valuation of five hundred million dollars is, frankly, aggressive.
Our assessment is three hundred and fifty million.
Second, twenty percent of the shares is insufficient.
We are looking for at least thirty percent.
Third, and this is not a point of negotiation but a commitment on our part, if this funding is concluded successfully, everyone in this room will actively support Yahoo’s development.
We want to see this company become the defining name of the internet age.
With that said, the floor is yours.”
Grove led the investors back out of the room.
The Yahoo team looked at each other across the table.
…
John Leighton was the first to speak.
“Three hundred and fifty million is too low, and we cannot give away that much equity.
If we concede thirty percent in the first round, what does the second round look like?
We could reach a point where the founders no longer control their own company.
We are not going to become the next case of a founder being pushed out of what he built.
Look at what they actually said.
They made two points, but listen to the emphasis.
The shares are what they actually want.
Their real objective is more equity.
The valuation figure is the opening position in a conversation, not a hard ceiling.
If we do agree to release additional shares beyond twenty percent, any excess must be structured without voting rights.
Dividend rights only.
Control of Yahoo stays with us.”
Jerry Yang and the others absorbed this and nodded.
The logic was sound.
In later years, the cautionary examples of founders losing control of their own companies would become well known.
Google and Facebook had both navigated this carefully during their funding processes, structuring share classes so that even as outside equity grew, the founders retained decision-making authority on the board.
That was the model worth following.
With the framework clear, the specific conditions came together quickly.
Once people know what they are trying to protect, the terms tend to follow naturally.
…
The negotiation that followed was conducted by Jerry Yang and Tim, with John Leighton watching from the side.
It was lively.
One side wanted a lower valuation and more shares.
The other wanted the valuation held as high as possible and the equity given away kept to a minimum.
The valuation settled first.
Four hundred million dollars, a meaningful climb from three hundred and fifty and a meaningful concession from five hundred.
Both sides could live with it.
The shares took longer.
The investors wanted thirty percent.
Jerry Yang and Tim held at twenty.
The resolution came when Jerry Yang introduced the voting rights structure John Leighton had outlined, proposing that twenty percent of the shares would carry full voting rights while an additional ten percent would carry dividend rights only.
One hundred million dollars for the combined position.
The investors accepted.
On top of that, Jerry Yang and David Filo each separately sold two and a half percent of their personal holdings for ten million dollars each.
Both had been students until recently and the improvement to their daily circumstances was overdue.
These shares were confirmed to carry no voting rights.
They were acquired by Kleiner Perkins and Sequoia Capital respectively.
John Leighton had no interest in selling.
If cash was needed, a bank loan was the answer.
His stake was not for sale.
…
The final structure came out as follows.
Five investment firms each contributed twenty million dollars for five percent of Yahoo’s shares, of which four percent carried voting rights.
Kleiner Perkins and Sequoia Capital each received seven and a half percent, with the additional two and a half percent purchased directly from Jerry Yang and David Filo for ten million dollars each.
After dilution, John Leighton held fourteen percent.
Jerry Yang held twenty-five and a half.
David held twenty-two.
Zach remained at three and a half.
Venture capital held thirty percent in total.
Zach, representing Yahoo on the legal side, worked with the legal representatives of each investment firm to draft the funding documents.
Jerry Yang signed on behalf of Yahoo.
The investors signed for their respective firms.
One hundred million dollars would be in the account within three days.
Board representatives would be dispatched from each firm.
Commitments were made regarding support for Yahoo’s development, with America Online specifically pledging to assist with setting up free personal email infrastructure, while the other firms offered access to human resources and technical talent pipelines.
When both parties signed and set down their pens, the small conference room filled with applause.
The sound carried through the glass walls and into the garage, where the Yahoo staff had been watching, and their cheer went up immediately.
…
Jerry Yang walked to the front of the garage floor.
“Everyone.
Yahoo has completed its first funding round.
Valuation: four hundred million dollars.
Total capital raised: one hundred and twenty million dollars, of which one hundred million is for company development and twenty million was cashed out by two of our founders.
The agreement is signed.”
The cheer was immediate.
“Additionally, to every Yahoo employee here, and I count exactly ten of you, the founders have discussed and agreed to release four percent of company equity to be shared equally among you.
That is zero point four percent per person.
It is not a large number, but it is real, and it is yours.
We hope you stay, keep building, and watch it grow with us.”
The arrangement had been worked out beforehand.
Tim received one percent separately as general manager.
The remaining four percent was divided equally among the ten staff members.
John Leighton had originally planned to wait until a later round to distribute equity, but on reflection, if the next major event was an IPO rather than another funding round, waiting would be unfair to people who had been there from the beginning.
The ten employees erupted.
At the current valuation, each of their holdings was already worth over a million dollars, and everyone in the room understood that number was going to move considerably higher.
The junior staff from the investment firms standing near the garage entrance watched the Yahoo employees with unconcealed envy.
…
Of the five percent released to staff, John Leighton contributed one percent from his own holding, and Jerry Yang and David each contributed two percent.
Jerry Yang had proposed the arrangement himself.
The final shareholding stood at: John Leighton fourteen percent, Jerry Yang twenty-five and a half, David twenty-two, Zach three and a half, employee ownership five percent, venture capital thirty percent.
As the applause settled inside the garage, a banner appeared across the Yahoo website, visible to every user visiting the portal that afternoon.
*Warm congratulations on Yahoo’s successful first round of funding.
Valuation: 400 million US dollars.
Total raised: 120 million US dollars.
Yahoo will only get better from here.*
The banner was seen by every person online that day.
By evening, the news had spread across the country.
Yahoo was no longer just the best website on the internet.
It was a name everyone in America now knew.