Skype's Zennström not big on paperwork

The money needed to be wired to a bank account in the Caribbean. There was no paperwork.

Luckily, said Howard Hartenbaum, a partner at venture firm Draper Richards, the deal to fund Skype turned out OK.

Speaking at the Venture Capital Investing Conference taking place in San Francisco, Hartenbaum told attendees about the early days of one of what has turned out to be one of the bigger success stories in technology in the past few years. Started about three years ago, Skype now accounts for around seven percent of the world's phone traffic and continues to grow. Chinese pop singers mention the service in songs.

Niklas Zennström, co-founder of Skype, was holed up in Europe and could not come to the states without risking being hit with a subpoena. The company had a bank account in Bahamas. Zennström told Hartenbaum to send the funds there. No contract was drawn up. Zennström just shook Hartenbaum's hand.

About a year later, when other investors got involved, someone retained lawyers to memorialize everything on paper.

Hartenbaum also admitted he was somewhat lucky on this deal, which was his first. Around 15 European venture investors passed on Skype before it came to him. The Skype founders also didn't need a lot of advice or assistance from outside investors (just money) in growing the company.

"These guys were going to make it no matter what," Hartenbaum said.