Shares in Overstock (NASDAQ:OSTK) jumped higher in early morning trading following the announcement that Medici Ventures, a wholly-owned subsidiary of Overstock that focuses on emerging blockchain technology, will be migrated to a new “fund” structure managed by VC Pelion Venture Partners. As reported yesterday, Medici, which includes ownership in tZERO will now be a limited partnership with Pelion acting as general partner and Overstock a limited partner.
Overstock CEO Jonathon Johnson voiced their ongoing interest in blockchain technology but the spin-out clearly states otherwise as Johnson sought a better path for returning value for shareholders. The new fund will return invested capital to Overstock first and then split profits on any successful exits as Overstock focuses more on its core business – the booming eCommerce sector.
Johnson said the move simplifies their story while capturing the upside of blockchain. Medici now has ownership in 18 different blockchain companies. By migrating to a fund, Pelion will manage all day to day operations and, if necessary, can raise additional capital. The term of the fund is 8 years. If more capital is needed, Overstock may decide to commit more ($30 million). Overstock will retain a direct minority equity interest in tZERO.
Scale and Achieve Successful Exits, Perhaps
The deal is expected to close in 3 to 6 months and removes significant risk from the Overstock balance sheet as the financial commitment is capped. Overstock may still benefit fr0m capital gains if any of the Medici portfolio companies emerge as a successful business or is acquired by another firm.
The turn of events is fairly dramatic as Overstock founder and former CEO Patrick Byrne envisioned something far different as he wanted to sell the eCommerce side and focus solely on blockchain. Obviously, this will now never happen and shareholders appear to be pleased with the decision.
Overstock will report annual results at the end of February.