YouTube was founded on Valentines Day in 2005. The initial idea was to bring video to dating, making it more personal and engaging than relying on photos alone. However, the founders soon realized that this idea was not taking off as expected. In an attempt to generate some traction, YouTube put ads on Craigslist offering to pay random women $100 to create a profile and upload a video to YouTube. Surprisingly, within about a week, they didn’t receive a single video of the dating variety, and they decided to open their niche and become a generic platform with no niche.
The founding team of YouTube all worked together at PayPal, including Chad Hurley, Steve Chen, and Jawed Karim. At the time, the founders felt like their goal of creating a generic platform where they could host all the videos on the internet was too bold of an idea.
Stephen Chen, a co-founder, said, “It was almost too bold of us to say we were going to create a generic platform where we could host all the videos on the internet. A week went by, we didn’t receive a single video of the dating variety. At that point, we just said, ‘it makes no difference, let’s make it a generalized site.’ So a week later, we changed it.”
YouTube Series A
YouTube’s Series A round took place in November 2005, just nine months after the company’s founding. The company was far from a sure thing at the time, with many skeptics and naysayers. However, Sequoia Capital led the round, investing $3.5 million at a valuation of $15 million.
Here is the genuine pitch deck:
Roelof Botha, the lead seed investor at Sequoia Capital, said, “The internet companies in those days had a chokehold on distribution, but what was really clever about YouTube was the use of links. I was sold immediately. There were so many people who were negative on the company at the time, even after we made the investment. So many people were mocking me for making that investment: ‘Online video has been tried and failed.’ There was a lot of skepticism about the business.”
Here is the real investment memo Sequoia partner Roelof wrote:
Interestingly, the YouTube founders never intended to sell their company. They believed in their product and its potential to transform the video-sharing landscape. However, Google had other ideas. They had already launched Google Video and were working to improve it. Despite their best efforts, the Google Video product was inferior to YouTube’s. YouTube was becoming a threat to Google, as people were using the site to conduct search queries.
Initially, Eric Schmidt, Google’s CEO at the time, thought that they could acquire YouTube for $50 million. However, this quickly changed as Yahoo started to emerge as a rival buyer. In just five days, the price to acquire YouTube increased to $200 million, an increase of $30 million per day! See below for the genuine email exchange re acquiring YouTube.
Finally, on October 6, 2006, 235 days after YouTube’s Series A fundraising round, Google acquired YouTube for $1.65 billion, which is equivalent to a valuation increase of $71 million per day from the initial £200m discussion.
It’s interesting to note that Vimeo was incorporated before YouTube, but it stayed a side-project for an LA comedy company, so it didn’t grow fast. Vimeo focused more on filmmakers and high-quality content, whereas YouTube became more of a user-generated content platform. Despite Vimeo’s early start, YouTube’s explosive growth made it the dominant video-sharing platform, and Google’s acquisition cemented its position as a leader in the industry.
In conclusion, YouTube’s journey has been a remarkable one. Despite facing skepticism and doubts about the viability of their business model, YouTube’s early investors believed in the potential of the platform and made significant investments that helped fuel its rapid growth.
YouTube’s story is a reminder that success often comes from a combination of hard work, innovation, and adaptability. The company’s founders saw an opportunity to disrupt the market, and they were not afraid to pivot when their initial idea did not work out.
Here is a video of Chad Hurley and Steve Chen celebrating the announcement that Google had acquired YouTube: