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How Elon Musk Made Initial Money from Start Up Venture – ZIP2?


Zip2 was a company that provided and licensed online city guide software to newspapers.The company was founded in Palo Alto, California as Global Link Information Network in 1995, by brothers Elon and Kimbal Musk and Greg Kouri.Initially, Global Link provided local businesses with an Internet presence.

In 1995, Musk and his brother, Kimbal, started Zip2, a web software company, with US$28,000 of their father’s (Errol Musk) money.

The company developed and marketed an Internet “city guide” for the newspaper publishing industry.In simple words, Zip2 was Elon’s vision of online yellow pages. It began as a code that Elon came up with that provided directions across the Bay Area, which was then pitched door to door by the Musk brothers and a small salesman team.The team eventually found investors, including Greg Kouri, who would later be a co-founder of Paypal with Musk.

Zip2 was basically an online coded mix of two databases: firstly, the business listing of nearby business in the bay area and secondly digital maps prepared by Navteq. Basically, it was yellow pages for the Internet .e.g. way to know the location for your nearest pizza parlor…

Zip2 got the slogan: “we power the press”. And press knowing that Internet could be trouble for them tried to sign up with all the online classified company like craigslist, zip2 etc.Musk obtained contracts with The New York Times and the Chicago Tribune and persuaded the board of directors to abandon plans for a merger with CitySearch. While at Zip2, Musk wanted to become CEO; however, none of the board members would allow it.The venture capital firm Mohr Davidow ventures caught wind of two South African boys building yellow pages for the internet and ended up investing around $3 million. With the infusion of new capital, the business model also transitioned. Instead of selling door to door, Zip2 started creating a software package that could be sold to newspapers, which would, in turn, build their own directories for real estate, auto dealers etc.This is one of the decisions Elon regrets to this date, as he was soon pushed down to the role of a CTO.

Rather than exploiting the bigger opportunity (selling services directly to consumers) as Yahoo did, they became conservative and behind the scene player to press. This irritated Musk.

Then Zip2 just failed to merge with its rival City search. Zip2 started losing money after this and losing the monopoly on market felt the heat of competition.Compaq, suddenly, offered Zip2 a big sum around 300 million dollars, biggest deal for an Internet company. Compaq used Zip2 to empower its search engine Altavista which provided, later, search results for Yahoo and then get to the knees in front of Google.

Compaq acquired Zip2 for US$307 million in cash and US$34 million in stock options in February 1999. Mohr Davidow came away with the highest profits, making around 20 times its original investment. Elon and his brother Kimbal made $22 million and $15 million respectively.

Musk received 7% or US$22 million from the sale.


Source: https://www.quora.com/What-did-Elon-Musks-first-company-Zip2-do-and-what-happened-to-it-after-acquisition



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