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Venture Capital

When VCs Sell Early

About three years before Box went public this past January, two of the company’s biggest shareholders, venture capital firms Draper Fisher Jurvetson and U.S. Venture Partners sold 6% of their stakes for a collective total $20 million, a big gain on the $1.6 million the shares cost.

Box wanted early investors to sell some shares as part of a new fundraising round, DFJ partner and Box board member Josh Stein says. Still, DFJ now acknowledges leaving some money on the table with the deal. DFJ sold at $9.07 a share, while today Box stock trades at around $13. Worse, the firm bought more stock in later fundraising rounds at prices of up to $18 a share, costing it millions more, he said. Mr. Stein half-jokingly calls the sale “terrible” for the firm’s return on its Box investment.

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Another issue: VCs selling early risk alienating companies. Such sales have long been seen as signaling a lack of confidence in a company.