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Waltham's Matrix Leading Venture Pack on Both CoastsFirm credits discipline, insistence on lead role for stunning '90s returns
BUSINESS & MONEY WALTHAM - Paul Ferri keeps two
client letters framed on the wall behind his office door in this
suburban haven of venture capital.
One letter, dated Sept. 12, 1994, informs the Matrix Partners founder that an overseas investment group would sit out that year's venture portfolio. Results in Fund II had not wowed the group, and it was "premature to make a judgment on Matrix Partners III." Talk about an expensive decision. The other letter, sent in April 1995, contains a rave from an elated American investor: "I have never seen a portfolio explode on the upside as has Matrix III in the past year." Matrix hasn't opened its venture funds to new investors since. The firm has emerged as one of the best performers in the business, according to several investment sources, with a stunning 95 percent average annual return over the past decade. It's a record that rivals even the venture industry's Silicon Valley titans. And the returns on Matrix's latest fund appear to be unrivaled on either coast. This is fighting talk in venture circles, where egos are huge and investment results are guarded like family secrets. But with the stock market in the doldrums and dot-com flops deflating venture returns after three sizzling years, it's a good time to take a peek and see who has really made money in this field. Stephen N. Lisson, a writer in Austin, Texas, tracks top venture players on his Web site, insiderVC .com, much to the chagrin of the venture firms. He has sparked controversy for researching and posting the returns on his site, but his numbers, when checked with independent sources, appear to be correct or in the ballpark. According to Lisson's numbers, Matrix's Fund V, a $200 million fund launched in 1998, is the best venture fund of all time, with a 725 percent return. Lisson says it's really too soon to judge funds of the 1998 vintage because they're young and many of their portfolio companies haven't been sold or taken public, or left to die yet. Venture funds, after all, have 10-year lives. But in the case of Matrix V, he says, "Even if everything else in the fund tanked, the internal rate of return of 725 percent would stand." This fund claims several hot deals, including telecom IPO juggernauts Sycamore Networks Inc. and Sonus Networks, which turned early-stage investments of $17 million into holdings worth more than $3 billion. Of the $450 million Matrix invested from funds III, IV, and V, about $220 million went into companies that have gone public or have been sold. That $220 million has returned more than $11.5 billion, the firm says. Matrix partner Timothy Barrows says a sharp discipline kept the firm away from the dot-com mania that clouded the judgment of many venture firms.
"There are things we could have made money on,"
Barrows says. "We turned down Geo Cities," a company that helps people
launch Web sites.
But Barrows and his six Matrix partners can only feel good about getting into telecom and optical firms early, focusing on infrastructure and, more recently, storage. The firm is famous for putting entrepreneurs from its past successes, like Cascade Communications and Apollo, to work at the new firms. And it simply won't do deals unless it's the lead investor, in first, with board seats. The recipe has paid off handsomely for entrepreneurs, too. Matrix has helped create more than 2,500 millionaires at its portfolio companies. More than 40 of those people can claim a net worth exceeding $100 million, the firm estimates. Ferri says the firm wasn't always this good. To some extent, he understands why that overseas investor fired the firm in 1994. Matrix's first two funds posted above-average returns, he said, but they were nothing special. "We looked like everyone else," Ferri says. "There was no reason anyone would come to see Matrix specifically." But the firm was in the process of a makeover it had started in 1990. It decided to turn more attention to New England, instead of investing two-thirds of its assets in Silicon Valley. It stopped investing in medical devices and retail and focused only on high-tech start-ups. And it decided to do only hands-on deals. "If we're not the largest investors in a deal, we're not in a deal," Ferri says. Thirty years in the business has paid off, the 61-year-old veteran says. He's not at all surprised by the carnage and losses overwhelming the new entrants to the business, from fly-by-night incubators to start-up venture firms. "It looks like an easy business to be good at," Ferri says. As a result, over the past few years, pension funds and other big investors have flooded venture funds with cash. "They've been giving money to a lot of people who don't have a clue as to what they're doing." All the best firms do have a clue, of course. Other top funds of venture capital's record decade include Sequoia Capital's Fund VIII, with a return of nearly 402 percent, and Kleiner, Perkins, Caufield & Byers' Fund VIII, with a return of 350 percent. These two firms are considered the most successful and most experienced of Silicon Valley. Lisson's long view, assessing all the top firms over the past decade, is this: "Vintage year after vintage year, fund after fund, there is no question that Sequoia and Matrix will be at the top." People who run university endowments and foundations corroborate Matrix's reputation. In the same company, venture experts put Boston's venerable Greylock Management Corp.; North Bridge Venture Partners of Waltham; Kleiner, Perkins; Benchmark Capital Partners - the Silicon Valley firm of eBay fame - and Redpoint Ventures, also of the Valley. In the next breath come Battery Ventures of Wellesley, Charles River Ventures of Waltham, and Oak Investment Partners of Westport, Conn. There are dozens of other fine firms with great returns. But only one can be the best. One Boston endowment investor who has money in many top venture funds - speaking on condition of anonymity, so he wouldn't anger several successful and hyper-competitive venture players - says of Matrix, "The last three funds have been extraordinary." "Matrix," he adds, "is in a league of their own." 
© Copyright 2005 Globe Newspaper Company.
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Tuesday, February 11, 2014
Stephen N. Lisson
Monday, January 27, 2014
Stephen N. Lisson, Austin TX, 2014
2014
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Universal, EMI Sue Napster Investor
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Universal, EMI Sue Napster Investor
Record labels say firm enabled infringement. Critics say the move may
deter venture capitalists.
April 23, 2003|Joseph Menn | Times Staff Writer
Unable to extract their pound of flesh from bankrupt Napster Inc., two
of the five major record labels are suing the venture capitalists who
backed the defunct song-swapping service that turned music industry
economics upside down.
Universal Music and EMI filed a federal lawsuit against Hummer Winblad
Venture Partners and two of the San Francisco firm’s general partners,
Hank Barry and John Hummer, in Los Angeles on Monday. The suit claims
that they contributed to the copyright violations by Napster’s tens of
millions of users.
In addition to seeking $150,000 per violation, the suit asks for
punitive damages. It also is intended to dissuade investment in any of
the song-swapping services that have risen in Napster’s place.
“Businesses, as well as those individuals or entities who control them,
premised on massive copyright infringement of works created by artists
should face the legal consequences for their actions,” the record labels
said in a statement.
The suit may mark the first time an outside party has targeted a venture
firm for wrongdoing by a company in which it invested. “I don’t know if
this has ever happened before,” said Jeanne Metzger, vice president of
the National Venture Capital Assn.
The trade group and others warned that even if the labels lose the case,
the fact that they sued will deter institutional investors from taking
on a high level of risk with new companies.
“It’s going to create an enormous amount of reluctance to get involved
in anything that could draw litigation from the content industries,”
said Silicon Valley intellectual property lawyer Mark Radcliffe.
Barry and Hummer didn’t respond to telephone and e-mail messages seeking
comment Tuesday. Barry served as Napster’s chief executive for more
than a year, and both men sat on Napster’s board.
The suit claims that Hummer Winblad knew Napster was enabling massive
infringement and that the firm controlled Napster’s activities with its
general partners in the chief executive and director positions and
through its $13-million investment in May 2000. The investment was made
five months after the record industry — including the two labels — sued
Napster for enabling infringement. Napster filed for bankruptcy
protection in June 2002.
Lawyers not involved in the case said Hummer Winblad has two reasonable
defenses. First, Napster hadn’t yet lost the record industry suit when
the firm invested. Second, directors and investors are rarely held
liable for the acts of their companies. In those cases in which
individuals are held responsible, they typically own 100% of the company
at fault.
The suit “is stretching contributory infringement way beyond where it’s
ever gone,” said Wayne State University copyright law professor Jessica
Litman. “I assume the purpose is to enhance the already significant
chill discouraging people from investing in businesses that challenge
the business models of the entrenched market leaders in the
entertainment industry.”
Indeed, a federal lawsuit filed by a music producer against Barry,
Hummer Winblad and others was dismissed after a judge found that the
accusations — similar to those in the record labels’ suit — were too
vague and that there was nothing in the copyright law to punish people
who assist an entity that assists others in breaking the law.
“Courts have consistently held that liability for contributory
infringement requires substantial participation in a specific act of
direct infringement,” U.S. District Judge Marilyn Hall Patel wrote in
that case.
But the two record labels may have evidence of specific actions by the
venture firm’s principals. And Hummer Winblad could be hurt by the fact
that Napster lost most of its court battles.
The plaintiffs have “a reasonable shot at the officer. I think the
director is a little tougher, and the shareholder theory is really
tough,” said Radcliffe, who represents technology and entertainment
firms.
Barry and Hummer anticipated that they might be sued and tried to
negotiate protection from legal consequences when German media firm
Bertelsmann was planning to buy Napster early last year. Those talks
foundered, and Bertelsmann itself has been sued for its investment in
Napster.
The venture capital trade association complained that with such actions
against investors, “the ability of entrenched industries to deter
investment in next-generation technologies has profoundly
anti-competitive and anti-innovative implications.”
But not everyone agreed that the labels’ suit will change how Silicon
Valley firms invest. As the suit notes, other venture firms had deep
concerns about Napster’s legality and didn’t invest.
“Top firms don’t take their cue from Hummer,” said Steve Lisson,
publisher of InsiderVC.com.
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Elite VC giants still investing
San Jose Mercury News
Matt Marshall
May 31, 2001
Now that they’ve gone gorilla size, will the elite venture capital firms
help stem the downturn in venture capital investing?
After the March 2000 market crash, elite VCs scrambled to triage their
portfolios. Only recently have they started to peer out of the
graveyard.
But they’ve undergone a profound change in nature: They’ve become
monsters. This is good if you’re an entrepreneur shooting for the moon.
It’s fatal if not.
In 1995, only one top-tier fund, TA Associates, had raised a billion
dollars. But since the crash, 15 top-tier firms have raised funds of
that size or more. Many — including Worldview Technology Partners,
Greylock, Austin Ventures and Oak Investment Partners — announced their
new funds this year, well after most of the market damage.
Steve Lisson, of InsiderVC.com, says the amount of funds raised since
the crash goes against the “drought” thesis.
“The perception that there’s going to be less venture investing is
totally misplaced,” he says. “These VCs need to get into lucrative
investment opportunities, and they’re going to want larger stakes.
They’re going to have to step on the gas even more.”
Similarly, he adds, if an entrepreneur offers an opportunity for a
“mega” investment, he’ll be able to negotiate more favorable terms,
because the big venture capitalists will all want in. On the downside,
entrepreneurs that don’t show home-run promise will struggle.
True, some VCs that raised large funds say they have slowed their
investment pace. Flip Gianos, partner at InterWest Partners, said his
firm hadn’t expected the magnitude of the downturn when it raised its
fund. If it takes waiting a year for strong opportunities to come along,
VCs will wait, he says.
Others counter that size has forced them to invest more in later-stage
start-ups because they soak up more money. Michael Darby, general
partner at Battery Ventures, says his firm still focuses on early stage
deals, but “in this environment, the fact that we want to deploy capital
means we’re looking at those later-stage deals.”
There’s another reason for hope after the crash, Lisson says. Many VC
firms have been able to negotiate stellar terms with their investors —
even better than those they negotiated just a couple of years ago.
That’s also a sign that investors still have faith in the VCs, he said.
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How to rate a venture capital firm
By Lawrence Aragon
April 16, 2001
Red Herring explains how it came up with its list of top venture capital
firms
for the 2001 version of the Red Herring 100: Kleiner Perkins Caufield
and
Byers, Accel Partners, Matrix Partners, Sequoia Capital Partners, and
runner-
ups Oak Investment Partners, Mayfield, Greylock, Menlo Ventures, North
Bridge Venture Partners, and Benchmark Capital.
Venture capital is like baseball without the stats. There are great
arguments
about who’s the best — and worst — VC around. But unlike baseball fans,
those
who follow venture capital have scant data on which to base their
opinions.
Until now.
As part of our annual Red Herring 100, we set out to determine the top
ten VC
firms using the best metrics we could come up with. To our knowledge,
this is
the first time anyone has come up with a list based on more than a
single
metric, such as the internal rate of return (IRR).
Before we get into each of the ten factors we examined, allow us a brief
explanation as to why we didn’t include the most common metric: IRR. IRR
is
a number determined by each VC firm, and although it’s bandied about
frequently, it can be easily tweaked to make a firm look like it’s doing
better
than it actually is. It isn’t uncommon for a VC that isn’t performing
very well to
inflate its IRR by counting its own “carry,” the money it makes from
investments, into its IRR.
The only real way to know how a VC firm is performing is to look at its
disbursements to its limited partners (LPs). This is the actual stock or
money
that VCs get from a liquidity event — that is, a portfolio company’s IPO
or its
sale to another company. The only problem is, VCs don’t want to share
this
information.
Enter Steve Lisson, editor of InsiderVC.com, a venture capital research
firm.
Mr. Lisson has been able to infiltrate the closemouthed community of LPs
and
get its members to share disbursement figures. We asked Mr. Lisson to
come
up with a list of the best ten VCs in the country, based on
disbursements to LPs
and how consistently they have returned the big bucks to LPs.
Here, then, are the top ten venture capital firms: Kleiner Perkins
Caufield &
Byers, Accel Partners, Matrix Partners, Sequoia Capital Partners, Oak
Investment Partners, Mayfield, Greylock, Menlo Ventures, North Bridge
Venture Partners, and Benchmark Capital. The top four firms (the first
four
listed) made it into the Red Herring 100. Now, on to our criteria:
underneath
the chart just below we review in depth the ten factors we rated the
companies
on.
1. Kleiner Perkins Caufield &
Byers 10 10 10 6 10 9 10 5 10 109.09
2.Accel Partners 9 9 8.58 10 9 9 5 10 108.77
3. Matrix Partners 9 10 10 9 5 10 10 10 4 6 8.36
4. Sequoia Capital Partners 6 10 9.5 8 10 7.5 10 5.5 2 4 7.14
(tied) Oak Investment
Partners 8 10 6.5 10 2 5 10 7 2 107.14
(tied) Mayfield 7 10 9.5 7 10 8 10 6 0 4 7.14
7. Greylock 6 10 10 9 4 9 10 7 6 0 7.00
8. Menlo Ventures 8 10 5.5 8 3 10 6.5 7.5 2 2 6.41
9. North Bridge Venture
Partners 7 3.5 10 7 6 9 8 9.5 0 2 6.27
10. Benchmark Capital 7 3 6.5 7 3 8 1 4 10 2 5.32
Average7.7 8.55 8.6 7.9 6.3 8.45 8.45 6.65 4.6 5 7.26
1 The disbursement category is weighted twice that of other categories.
Data from Steve Lisson,
editor of InsiderVC.com.
2 Operating experience counts VP level and above.
Disbursements.
Mr. Lisson gave a score of 10 to just one VC firm: Kleiner Perkins
Caufield &
Byers. Benchmark Capital, which has had some monster hits in the past
couple
of years, scored a 7, because it has only been around for six years.
Longevity.
In the venture business, age counts for a lot. It means a firm has been
battle-
tested and has done well enough to get its LPs to continue investing. We
took
each firm’s number of years in business and divided that figure in half
to come
up with a score (with a maximum score of 10). Six firms earned a 10. Two
firms
came up short: Benchmark and North Bridge Venture Partners, with scores
of
3 and 3.5, respectively.
Pressure to invest.
A general partner is better off if there isn’t pressure to put a lot of
money to
work. We divided the amount of a firm’s current fund size by its number
of
general partners, then assigned a value to the resulting figure. After
talking to
several VCs, we determined that $90 million per partner was reasonable
to
assign a score of 10. We gave a 9 to anyone managing $110 million, an 8
to
those managing $130 million, and so on.
VC experience.
This should be self-explanatory as to why it’s important. We gave
general
partners with 15 years or more of experience a score of 10. Those with
12 to 14
years received a 9, and so forth. Oak Investment Partners came out on
top in
this category, with an average of 17 years for its partners. Even though
Kleiner
has at least three partners with more than 20 years of experience, its
score got
knocked down to a 7 because it recently added some technology executives
to
its partnership.
Operating experience.
With so many portfolio companies in trouble these days, every VC firm
needs
partners who’ve been in the real world to advise troubled companies. We
gave
each firm a point for any general partner with operating experience,
plus a
bonus point for any partner who qualified as a “star.” General partners
who fell
into the star category include Kleiner’s Ray Lane, former president and
chief
operating officer (some say the de facto CEO) of Oracle, and Mayfield’s
Janice
Roberts, who ran Palm when it was a division of 3Com.
Board seats.
Six boards is the maximum number you can sit on and still actually
contribute
valuable time and energy, we’re told by veteran VCs. Menlo Ventures and
Matrix Partners were the only firms whose partners sat on an average of
six or
fewer boards, giving them perfect 10s. We gave firms whose partners held
an
average of seven to eight board seats a score of 9, and so on. Oak fared
the
worst: its six general partners sit on an average of 12 boards each.
IPOs/Sales.
This is one of those categories that VCs like to brag about, but it can
often be
misleading. Two firms may be in the same IPO, but one may own 15 percent
of
a company while another owns 1 percent. The only real way to know how
well a
VC did in an IPO is through disbursement figures. Still, we felt we
should give
VCs some credit for liquidity events. We gave a firm one point for every
$1
billion in value, with a maximum of 10 points for $10 billion. IPO
figures were
based on the close on the first day of trading. Sale prices were based
on the
value on the day the deal closed. A lot of moonshot IPOs have fallen
back to
earth, so this category is squishy at best.
Lack of portfolio problems.
Matrix was the only firm on our list that had no failed or troubled
companies.
We gave each firm 1 point for every failed company and half a point for
every
company that had laid off employees in the past year. We then subtracted
that
total from 10. Benchmark fared the worst in this category with a score
of 4.
Blame it on those Internet bets like Living.com, MVP.com, and Send.com.
RH 100 factor (2000 and 2001).
VCs deserve credit for portfolio companies that show great promise.
Because
the staff of Red Herring spent weeks vetting all of the companies that
made the
Red Herring 100 list, we used the private portion of the list (50
companies) in
2000 and 2001 as a basis for determining potential hits. For every
portfolio
company on the Red Herring 100, we gave a firm 2 points, with a maximum
of
10. Kleiner and Accel Partners were the only firms to receive 10s for
both years.
Kleiner had the most companies on this year’s list: Zaplet, Epoch,
Synaptics,
SmartPipes, Asera, and Bowstreet.
As much time as we spent thinking about how to create a top ten VC list,
and
then double- and triple-checking the data, we’d be nave if we didn’t
expect
some VCs to take issue with our numbers or our methodology. So, don’t
feel
shy about expressing your opinion.
Write to laragon@redherring.com.
Note: In the “Top 10 VC Firms” on page 185 of issue 97, Menlo Ventures
should have been ranked No. 8 and North Bridge Ventures should have been
No. 9. In addition, we did not make it clear that three firms tied for
4th place:
Sequoia Capital Partners, Oak Investment Partners, and Mayfield. The
data
is correct here.
SPONSORED LINKS
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VALLEY TALK
Behind the VC Music
FORTUNE
Wednesday, November 22, 2000
By Mark Gimein
Stephen Lisson is not a conventionally likable guy. On more
than one occasion, he’s implied that I’m the single stupidest
reporter he’s ever talked to. He has kept me on the phone for
hours at a time listening to the most arcane statistics, until I’ve
slammed down the phone in frustration. He calls people who
disagree with him “lickspittles.” He dismisses many of the
visitors to his Website as “parasites.”
And yet over the past few months I have repeatedly gone back to
Lisson and his new Website, InsiderVC.com, because Lisson has
the best data out there about venture capital, and often the most
interesting things to say about it.
Venture capitalists are the rock stars du jour of the financial
world, a species of money managers who are believed capable of
superhuman wisdom. Business magazines tend to assume that
the richer you are, the smarter you must be, and the Internet
boom has lavished untold riches on the venture capitalists who
invested early.
“Untold” is a key word here, because hardly anyone knows
exactly how great these riches are. In this way, venture-capital
funds are very different from, say, mutual funds. Venture
capitalists talk vaguely about “triple-digit returns,” but even
successful funds tend to keep their returns a closely guarded
secret. And even when they do reveal numbers, they can be hard
to understand.
This is where Austin, Texas, entrepreneur and venture-capital
gadfly Stephen Lisson comes in. Through years of research and,
apparently, a lot of cooperation from a network of sources
willing to send him copies of the reports that venture-capital
firms send out to their investors, Lisson has gathered an
immense database of information about venture-capital firms’
investments and profits.
Lisson doesn’t make all his data public–much of his information
is limited to subscribers, and he can be picky even about whom
he allows to subscribe. But what he’s already revealed in the
public sections (for example, see: Database Example) of
InsiderVC.com is fascinating. Some of his data shows exactly
what you might expect. Benchmark Capital Partners’ 1995 fund-the
fund that famously invested in eBay–has already returned to
its investors 38 times the money they put in. Investors who put
money into the fund that Kleiner Perkins Caufield & Byers,
Silicon Valley’s best-known venture-capital firm, raised in 1996,
have already made a similarly spectacular return of over 1,000%.
But you’ll also find that the 1997 fund raised by Hummer
Winblad, another venture-capital firm that has traditionally
received a lot of attention from the press, has so far returned
only 42% of its investors’ money. That might be a decent
showing in any other era, but in the middle of the biggest
technology boom or bubble in history, it’s not great, and not
nearly as good as some of Hummer Winblad’s peers. (Typically,
venture funds distribute cash or stocks as the companies in their
portfolio are sold or go public. In theory, that means they can
continue paying out money to investors for a very long time, but
in practice, almost all of their profits are made in the first six
years of the fund.)
Even more interesting are the data that Lisson has gathered on
how venture capitalists value their investments. Venture
capitalists measure their own performance by an “internal rate of
return”–an annualized rate of increase in the value of their
investments. Often that’ll be a number in the high double digits,
sometimes in the triple digits. Sounds pretty good when you
compare it with the typical mutual fund. But if you look at the
InsiderVC.com database, you’ll find that funds claiming
immense annual returns sometimes pay out a lot less money to
investors than you’d imagine.
As of March 2000, Benchmark claimed an annualized return of
an amazing 279% for Benchmark III, the fund that the firm
raised in 1998. But wait a second! Lisson’s data also show that
Benchmark III hadn’t actually distributed any cash or stock to its
investors. That 279% return was based on a guesstimate of the
value of the companies Benchmark has invested in–companies
that, since they hadn’t gone public, are notoriously hard to value.
One of those companies, Living.com, has already gone bankrupt,
reducing the value of Benchmark’s investment from an estimated
$74 million to zero. And it’s hard to believe that, with the Net
bubble bursting, Benchmark’s investment in eBags.com is really
worth the $20 million-plus that Benchmark valued it at in
March.
For individual investors who don’t have a prayer of putting their
money into funds that deal only with tech insiders, large
institutions, and foundations, analyzing exactly how much the
top funds make can certainly seem like an academic exercise. It
can all sound arcane, confusing, and dull, and if you are not an
investor in venture-capital funds, I don’t recommend it as a
hobby or a business. But it’s important that somebody do it.
First, because venture investment is the engine driving much of
Silicon Valley’s technological innovation. And, second, because
it’s important for somebody like Lisson to remind investors and
the business press that venture capitalists are not the gods of
finance they are often made out to be, but instead, very well-
trained money managers. Sometimes very smart money
managers, sometimes very lucky money managers, but
nonetheless, financiers who’ll often make a lot of money and
sometimes, like the rest of us, flub it.
HOME | COMPANY PROFILES | INVESTING | CAREERS | SMALL BUSINESS | TECHN
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NVCA Advocates More Confidentiality on Returns
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The Private Equity Analyst WEEKLY Page 6 of 7 NOVEMBER 12, 2001
MARKET INTELLIGENCE
NVCA Advocates More Confidentiality on Returns By Sree Vidya
Bhaktavatsalam
Could it be a coincidence that GPs are getting touchier on the
issue of confidentiality of fund performance data at a time when
private equity returns are plummeting?
The National Venture Capital Association recently distributed
a list of suggestions for GPs to reduce unwanted
disclosure of information included in reports to their LPs,
particularly public pension funds, presumably to spare GPs the
shock of seeing their fund returns posted on a Web site or in a
trade press article.
Many state, municipal and local pension funds have fair
disclosure regulations, which, in the interest of transparency,
may require that the information be made available to the
public. NVCA’s suggestions include entering into confidentiality
agreements with LPs and tailoring the data distributed to
minimize the “harmful effects of subsequent public disclosure.”
Advocates for keeping performance data confidential
argue that the private equity industry relies on imperfect
information about private companies, which can be too
sensitive to reveal to the public. Also, they say that in the
absence of any standardized method of reporting private equity
returns, performance data presented in the form of IRRs can be
inaccurate and misleading.
President Mark Hessen of the NVCA says his concern is
that individuals (reporters, for example, or retirees whose public
pension program is used to invest in private equity funds) may
not be well-versed in the intricacies of performance data and
thus will get a distorted view of overall fund returns by looking
at quarterly reported returns.
‘A quarterly perspective is not representative of the entire
fund,’ he says. “We need to educate the public before we can
throw this information out there.”
Still, some like Michael Smith, director of research at
Atlanta-based consulting firm Hewitt Investment Group, believe
that transparency is the only way for prospective
Sources of private equity fund performance data
Venture Economics, Newark, N.J.: A division of
Thomson Financial. Provides industry wide private
equity performance benchmarks. Reach the firm at 973-
622-3100.
Cambridge Associates, Boston: Provides private
equity performance benchmarks and consulting services.
Reach the firm at 617-457-7500.
InsiderVC.com. Austin, Texas: Provides performance
data on individual venture capital firms. Its Web
site is at http://www.insidervc.com.
investors to separate “the wheat from the chaff.
“This is a market that two years ago did not need new
quality institutional investors,” he says. “Clearly that is different
now-if (VCs) want to broaden their appeal, the way to do it is by
making it more transparent.”
NVCA’s suggestions come at a time when GPs are still
smarting from California Public Employees’ Retirement
System’s decision earlier this year to post fund performance
data on its website. Calpers posted the IRRs of the 163
partnerships it had invested in since 1990, and had downgraded
some firms as “not performing up to expectations.” (See Private
Equity Analyst Weekly, June 4, page 5.) A few months later,
Calpers yanked the returns data from its Web site, after receiving
complaints from its GPs.
So, how can prospective investors gain access to the
performance data of venture capital and private equity firms?
Some public pension funds do make their quarterly performance
reports available to the public as a matter of course. Others,
like Florida State Board of Administration, make information
available, if the public requests it. And then there are quarterly
benchmark numbers for the whole industry released by Venture
Economics and Cambridge Associates. (See table below.)
One source of fund performance data is the Web site
InsiderVC.com, whose founder, Stephen Lisson, has received
both brickbats and bouquets from venture capitalists for his
analysis of performance data and his provocative commentary.
His Web site provides performance data of hundreds of venture
capital and private equity funds including those managed by
New Enterprise Associates and Matrix Partners.
In an interview, Mr. Lisson declined to reveal his sources
of information. “The reason people share information with us is
that we are very discreet, and we are very careful about who
sees our information.” Indeed, Mr. Lisson carefully screens
applicants before allowing them to subscribe to the performance
data contained in his Web site.
Mr. Lisson stresses that his data is not intended for the general
public. “My data is for insiders to improve their own game. VCs get to
benchmark themselves against their peers-it’s a confidence level
thing,” Mr. Lisson says. Mr. Lisson acknowledges that the VC
community could benefit from a healthy dose of transparency and
humility. “Sunlight is the best disinfectant,” he says. But he questions
the value of making public IRRs and interim valuations, which by
nature are based on subjective evaluations. “There should be less
focus on returns and interim valuations, and more focus on building
world class companies.”
Copyright 2001 Asset Alternatives, Wellesley, Mass.
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Venture Capital Financing Is Further Sapped by Events
Venture Capital Financing Is Further Sapped by Events STEVE
LISSON, STEPHEN N. LISSON, STEVE N. LISSON, STEVE, LISSON, INSIDER, VC,
INSIDERVC, INSIDERVC.COM
Wednesday September 26 08:57 AM EDT
Venture Capital Financing Is Further Sapped by Events
By MATT RICHTEL The New York Times
Already suffering from the dot-com bust, venture capital investing is
being further challenged in light of the recent terrorist attacks and
growing signs of recession.
• Search NYTimes.com:
SAN FRANCISCO, Sept. 25 Venture capital investing, the high-risk
financing of early-stage companies that has been markedly curtailed in
the last year, is being further challenged in light of the recent
terrorist attacks and growing signs of recession, those investors say.
The venture capitalists assert that the slowing of the economy, coupled
with an uncertainty about the public markets, is affecting all facets of
their industry, including their ability to raise new funds, their
decisions about which and how many companies to invest in, and their
expectations about when their existing investments will become
profitable.
Putting a fine point on the concern, the National Venture Capital
Association issued a statement today saying the industry “is preparing
for an extremely difficult economic environment” in the next 12 to 18
months.
At the heart of the issue is a question about how venture capitalists
can expect to sell the investments they make. Typically they take their
companies public, or sell them outright. But those so-called “exit
strategies” are sharply limited, said Mark Heesen, president of the
National Venture Capital Association, a trade group based in Arlington,
Va., with 400 member firms.
“We were already in tough times,” Mr. Heesen said. “What Sept. 11 did
was make the likelihood of the I.P.O. market opening in the next four
quarters pretty unlikely. A lot of V.C.’s are saying it might not open
until 2003,” using the abbreviation for venture capitalists.
The investors say that as a result, they must put more money into
companies in which they are already invested, making sure to keep them
afloat until an exit strategy emerges. The numbers on investments made
in new companies bear that out: this year, venture capitalists will
invest about $50 billion in start-up companies, Mr. Heesen said,
compared with $105 billion last year.
Still, venture capitalists point out that this market appears to be so
difficult because this year is being compared with the two years
previous, which were anomalies, with exorbitant returns being driven by
the dot-com boom, and the expansion of the public markets.
Steve Lisson, editor and publisher of InsiderVC.com, said recent events
were reminiscent of the time around the gulf war, when the industry had
its last downturn. At that time, the ability to attract capital to
invest in start-ups “fell off dramatically,” but he said the industry
bounced back within several years to have the “best period in its
history.”
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Venture Capital Financing Is Further Sapped by Events
STEVE LISSON, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS
COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON,
INSIDER, VC, INSIDERVC, INSIDERVC.COM
Steve Lisson, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS
COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON,
INSIDER, VC, INSIDERVC, INSIDERVC.COM
Sitemap
Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation
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Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation
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litigants
VALLEY TALK
Behind the VC Music
FORTUNE
Wednesday, November 22, 2000
By Mark Gimein
Stephen Lisson is not a conventionally likable guy. On more
than one occasion, he’s implied that I’m the single stupidest
reporter he’s ever talked to. He has kept me on the phone for
hours at a time listening to the most arcane statistics, until I’ve
slammed down the phone in frustration. He calls people who
disagree with him “lickspittles.” He dismisses many of the
visitors to his Website as “parasites.”
And yet over the past few months I have repeatedly gone back to
Lisson and his new Website, InsiderVC.com, because Lisson has
the best data out there about venture capital, and often the most
interesting things to say about it.
Venture capitalists are the rock stars du jour of the financial
world, a species of money managers who are believed capable of
superhuman wisdom. Business magazines tend to assume that
the richer you are, the smarter you must be, and the Internet
boom has lavished untold riches on the venture capitalists who
invested early.
“Untold” is a key word here, because hardly anyone knows
exactly how great these riches are. In this way, venture-capital
funds are very different from, say, mutual funds. Venture
capitalists talk vaguely about “triple-digit returns,” but even
successful funds tend to keep their returns a closely guarded
secret. And even when they do reveal numbers, they can be hard
to understand.
This is where Austin, Texas, entrepreneur and venture-capital
gadfly Stephen Lisson comes in. Through years of research and,
apparently, a lot of cooperation from a network of sources
willing to send him copies of the reports that venture-capital
firms send out to their investors, Lisson has gathered an
immense database of information about venture-capital firms’
investments and profits.
Lisson doesn’t make all his data public–much of his information
is limited to subscribers, and he can be picky even about whom
he allows to subscribe. But what he’s already revealed in the
public sections (for example, see: Database Example) of
InsiderVC.com is fascinating. Some of his data shows exactly
what you might expect. Benchmark Capital Partners’ 1995 fund-the
fund that famously invested in eBay–has already returned to
its investors 38 times the money they put in. Investors who put
money into the fund that Kleiner Perkins Caufield & Byers,
Silicon Valley’s best-known venture-capital firm, raised in 1996,
have already made a similarly spectacular return of over 1,000%.
But you’ll also find that the 1997 fund raised by Hummer
Winblad, another venture-capital firm that has traditionally
received a lot of attention from the press, has so far returned
only 42% of its investors’ money. That might be a decent
showing in any other era, but in the middle of the biggest
technology boom or bubble in history, it’s not great, and not
nearly as good as some of Hummer Winblad’s peers. (Typically,
venture funds distribute cash or stocks as the companies in their
portfolio are sold or go public. In theory, that means they can
continue paying out money to investors for a very long time, but
in practice, almost all of their profits are made in the first six
years of the fund.)
Even more interesting are the data that Lisson has gathered on
how venture capitalists value their investments. Venture
capitalists measure their own performance by an “internal rate of
return”–an annualized rate of increase in the value of their
investments. Often that’ll be a number in the high double digits,
sometimes in the triple digits. Sounds pretty good when you
compare it with the typical mutual fund. But if you look at the
InsiderVC.com database, you’ll find that funds claiming
immense annual returns sometimes pay out a lot less money to
investors than you’d imagine.
As of March 2000, Benchmark claimed an annualized return of
an amazing 279% for Benchmark III, the fund that the firm
raised in 1998. But wait a second! Lisson’s data also show that
Benchmark III hadn’t actually distributed any cash or stock to its
investors. That 279% return was based on a guesstimate of the
value of the companies Benchmark has invested in–companies
that, since they hadn’t gone public, are notoriously hard to value.
One of those companies, Living.com, has already gone bankrupt,
reducing the value of Benchmark’s investment from an estimated
$74 million to zero. And it’s hard to believe that, with the Net
bubble bursting, Benchmark’s investment in eBags.com is really
worth the $20 million-plus that Benchmark valued it at in
March.
For individual investors who don’t have a prayer of putting their
money into funds that deal only with tech insiders, large
institutions, and foundations, analyzing exactly how much the
top funds make can certainly seem like an academic exercise. It
can all sound arcane, confusing, and dull, and if you are not an
investor in venture-capital funds, I don’t recommend it as a
hobby or a business. But it’s important that somebody do it.
First, because venture investment is the engine driving much of
Silicon Valley’s technological innovation. And, second, because
it’s important for somebody like Lisson to remind investors and
the business press that venture capitalists are not the gods of
finance they are often made out to be, but instead, very well-
trained money managers. Sometimes very smart money
managers, sometimes very lucky money managers, but
nonetheless, financiers who’ll often make a lot of money and
sometimes, like the rest of us, flub it.
HOME | COMPANY PROFILES | INVESTING | CAREERS | SMALL BUSINESS |
TECHN
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Venture Capital Financing Is Further Sapped by Events
Steve Lisson, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS
COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON,
INSIDER, VC, INSIDERVC, INSIDERVC.COM
STEVE LISSON, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS
COUNTY, TEXAS
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WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS
What’s a VC to Do?
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Selected Buzz Descending in Chronological Order
Selected Buzz Descending in Chronological Order
“You are getting more exposure than you ever expected and I
think you are using it wisely.
Keep it up!” - from the founder & managing partner of a
major East Coast venture capital firm
“You’re not overexposed, just listened to.” – from a West Coast
counterpart
The Boston Globe
Waltham’s Matrix leading venture pack on both coasts: Firm
credits discipline, insistence on lead role for stunning ’90s returns
There are dozens of other fine firms with great returns. But only
one can be the best. People who run endowments and foundations
corroborate Matrix’s reputation. The recipe has paid off handsomely for
entrepreneurs, too.
eCompany Now / Business 2.0
Death Valley
The Bay Area is coming to terms with the end of an era.
Forbes
The Un-Wild Bunch
The hottest VC firm you’ve never heard of.
Behind the VC Music
Venture capitalists are the rock stars du jour of the financial
world, but a new Website reveals that some funds pay out a lot less
money to investors than you’d imagine. For individual investors who
don’t have a prayer of putting their money into funds that deal only
with tech insiders, large institutions, and foundations, analyzing
exactly how much the top funds make can certainly seem like an academic
exercise. But it’s important that somebody do it.
Upside
New York Post
The inside scoop on VCs
For those who measure their worth by their investments and their
stock holdings – pretty much all of Silicon Valley – there’s a new Web
site that looks to be rivaling F**kedcompany.com for sly, subversive
attention.
Forbes
Day of E-tonement
Ouch. Investors feel the pain. This market is a bear, and it could
get meaner. Much was made earlier this year of those triple-digit
internal rates of return.
Barrons
The House of Pain (Barron’s Cover Story)
Ever since the IPO rocketship crashed to earth, the pros have been
asking themselves when, or whether, the new-issue game will revive. If
bad ventures henceforth go unfunded, all the agony may have been
worthwhile.
internet VC watch
Rumors of Benchmark’s Demise Greatly Exaggerated
For weeks, rumors have been circulating in the VC community that
Benchmark Capital’s third fund, Benchmark III, was in trouble, hit hard
by losses in e-commerce companies like 1-800-Flowers.com. The rumors
reflect a misunderstanding of how venture funds operate.
LocalBusiness.com
From Y2K to dot-com bombs: The year that was
Best-performing Sand Hill Road VC fund award; Worst-performing Sand
Hill Road VC fund award.
The Daily Deal.com
Early-stage deals take center stage as exit strategies blur: The
advent of good times for early-stage VCs and entrepreneurs as well
(Corrected)
The quality of many early-stage deals and the size of the financings
may actually increase. With valuations down, the VC party is only just
beginning. It’s just that many VCs don’t want to admit it.
eCompany Now
Bonehead Safari
Who’s the Dumbest VC? One reporter’s quest to lavish this
ignominious award. I doubted her investors were laughing.
Boston Mass. internet.com
internet.com vc watch
V.C. Battle: East vs. West
Kleiner Perkins Caufield & Byers and Matrix Partners are
considered the cream of the crop among venture capital firms, the kind
of VCs that limited partners are fortunate to be able to invest their
money with. So compliments paid, we set out to find out which was
better.
Red Herring
graphic
CNN fn
CalPERS tightens its grip on VC
Observers were surprised by the move, questioning why a venture firm
would want to let one of its limited partners play a more significant
role, or to share its profits with yet another partner.
The Boston Globe
Digital Mass
The thrill of defeat
TA Associates’ Kevin Landry is in the venture business because it’s
fun, he says. And to make money for the firm’s investors and partners.
Few complaints there.
For VCs the show is also over
(English text version)
When it’s about return on investment VCs tend to be vague and not
afraid of ‘window dressing’, making things look better then they are.
Bloomberg
CNET Investor
KKR’s 2.8 Percent Returns Hinder Raising New Fund (Update3)
Kohlberg Kravis Roberts & Co. is taking a beating in the
leveraged buyout business it all but created and dominated the past 15
years.
Seattle Post-Intelligencer
High tech’s bloom has faded for Paul Allen It is unlikely that all
of Vulcan’s Internet companies will be able to raise more money in the
future. That’s not bad for Vulcan.
Wall Street Research Net
Digital Mass
Rivals? Not when they see a good deal It’s common lore in Boston
venture circles: Where Matrix goes, North Bridge isn’t far behind.
internet VC Watch
Balance of Power Shifts To VCs, LPs However, just as the most
sought-after start-ups still command some power, top venture firms will
still set the agenda. The result of the new venture environment will be a
widening divide between the top VCs and start-ups and everyone else,
conditions that could hasten a shakeout in the industry.
Bloomberg
Venture Firms Seek Protection From Price Declines on New Stakes
Liquidity preferences have been around for 20 years and typically gain
wider use in periods of declining returns.
Business Forward Cover Story
COVER STORY: Venture Capital – Climbing the Capital Hill Falling
valuations are a double-edged sword for venture capitalists. Venture
firms can only maintain overvalued companies on their books for so long.
At some point, you either have to toss more cash at the money-losing
enterprise or take the loss. For the right VCs, however, all the gloom
and doom may actually turn out to be a blessing.
internet VC Linx
Benchmark Rumors Persist Now the rumor is that the firm’s latest
fund, Benchmark IV, is the one that’s in trouble. No doubt Benchmark is
holding its share of losing investments from the Internet craze. But so
are a lot of other name firms.
Globes Israel's Business Arena
Financial investors? Us? InsiderVC.com pierces the VC industry’s
verbal fog Managing partners gossip endlessly about the industry.
The Los Angeles Times
As Start-Ups Fail, Venture Investors Back Out in Droves Financing:
The stampede to put money into tech has reversed direction, with some
partners selling out at a loss.
The Boston Globe
Funds nationwide are seeing red Investors in Matrix Partners, a
Waltham venture group that is arguably outperforming everybody else in
the business, aren’t complaining about the downturn. Yes, they may have
gotten an astounding 19 times their money back on Fund IV launched in
1995. But they’ve also already reaped 12 times their original capital in
the 1998 Fund V.
The Industry Standard
Idealab’s Identity Crisis With only 40 percent of funds invested,
Fund II could be a hit or a bust, depending on how good its future
investments are. This explains in part why Clearstone wants distance
from Idealab.
The Red Herring
LeoCigar
How to rate a venture capital firm
Venture capital is like baseball without the stats. There are great
arguments about who’s the best — and worst — VC around. But unlike
baseball fans, those who follow venture capital have scant data on which
to base their opinions.
Until now.
As part of our annual Red Herring 100, we set out to determine the
top ten VC firms using the best metrics we could come up with. To our
knowledge, this is the first time anyone has come up with a list based
on more than a single metric, such as the internal rate of return (IRR).
Before we get into each of the ten factors we examined, allow us a
brief explanation as to why we didn’t include the most common metric:
IRR. IRR is a number determined by each VC firm, and although it’s
bandied about frequently, it can be easily tweaked to make a firm look
like it’s doing better than it actually is. It isn’t uncommon for a VC
that isn’t performing very well to inflate its IRR by counting its own
“carry,” the money it makes from investments, into its IRR.
The only real way to know how a VC firm is performing is to look at
its disbursements to its limited partners (LPs). This is the actual
stock or money that VCs get from a liquidity event — that is, a
portfolio company’s IPO or its sale to another company. The only problem
is, VCs don’t want to share this information.
The Red Herring Special Double Issue
Truth in Numbers
Deciding which VC firms are great requires determining which
measurements really matter. Among our criteria, disbursements to
investors may be the truest indicator of a firm’s success.
Internet VC Watch
U.S. Venture Returns Slipped In The Fourth Quarter The news wasn’t
all bad. Some top-performing funds that had “negative returns” not just
in the fourth quarter, but for the entire year, actually distributed
quite heavily to limited partners. Much of the appreciation in such
funds had already been factored into the IRRs.
The Boston Globe
Digital Mass
Good news outweighs bad for Battery
Gone was the euphoria of last year, when the Wellesley firm
announced it was raising a billion-dollar fund. This year the big money
was expressed in paper losses.
The Industry Standard
Excite
Yahoo! Finance
Fallen Idols – High-profile and respected VCs weren’t able to
resist the Internet bubble. Now many are paying the price with troubled
funds.
Venture capital firms information about their funds’ performance,
especially the current valuation of their investments, point to a fund
in trouble. While any fund raised during the last few years is enduring
tough times now, not every one is in the same boat.
San Jose Mercury News
Redpoint struggling to crank out results – Despite the VC firm’s
hyped reputation, first fund could be running into trouble
Redpoint’s partners are also still managing their previous funds at
IVP and Brentwood, several of which were started in 1997 or later. And
though these are what made Redpoint’s reputation, some of them are
turning out less stellar than originally thought.
The Daily Deal
Insight Capital raises $740M software fund
Later stage investing can be far less risky but also far less
lucrative than other types of strategies.
Silicon Valley
The San Jose Mercury News
Elite VC giants still investing, if it’s a home-run promise
Since the crash, 15 top-tier firms have raised funds of a billion
dollars or more. Many — including Worldview Technology Partners,
Greylock, Austin Ventures and Oak Investment Partners — closed their new
funds this year, well after most of the market damage. The amount of
funds raised since the crash goes against the “drought” thesis.
The Daily Deal
Matrix Partners raises $1B fund
Venture capitalists lure entrepreneurs on board
asahi.com
How `Internet Bubble’ looks at the stock market now Sequoia Capital
VCs left holding worthless IPO shares
Venture firm plots safe course Morgenthaler Venture Partners
Summit Partners crosses the pond
COVER STORY: Venture Capital – Back to Basics Firms that engage in
stage creep are asking for trouble.
VCs struggle to stay fit enough to survive Annex funds are not new.
Boston Business Journal
Rates of return down for Hub VC firms The reliability of internal
rate of return data is questionable. Moreover, it doesn’t say how much
cash and stock a venture capital firm has distributed to its investors.
That is the real number that should be watched.
Forbes ASAP
What’s a VC to do? Venture capitalists had better keep investing.
Matrix bets on wireless: In a weak economy, Managing Partner Paul
Ferri’s winning streak is on the line
The Wall Street Journal
Boom Town: The Next Tech Season Resumes As Sector Returns From
Hiatus Like the last downturn, some of the same VCs now repeat their
same biggest mistakes from a decade ago.
After dot-bombing, SBVC rebuilds
Softbank Venture Capital
The New York Times
Venture Capital Financing Is Further Sapped by Events
. . . recent events were reminiscent of the time around the Gulf
War, when the industry had its last downturn. At that time, the ability
to attract capital to invest in start-ups “fell off dramatically” but,
he said, the industry bounced back within several years to enjoy the
“best period in its history”.
Private Equity Analyst, Asset Alternatives
NVCA Advocates More Confidentiality on Returns
(Corrected):
. . . acknowledges that the VC community could benefit from a
healthy dose of transparency and humility. “Sunlight is the best
disinfectant,” he says. But he questions the value of making public IRRs
and interim valuations, which by nature are based on subjective
evaluations. “There should be less focus on returns and interim
valuations, and more focus on building world class companies.”
VC Like Me: Local Firms May Feel the World Is Against Them, as
Investments, and Returns, Dry Up. But Some Venture Capitalists Say Now’s
the Perfect Time to Make Money. The bigger risk is not that VCs will
take on new projects in less lucrative sectors. It’s that they won’t
abandon the bad investments they might still be carrying.
The Wall Street Journal
Investment Dealers Digest
Private Equity Week
The Wall Street Journal
San Francisco Chronicle
Venture Capital Journal
Washington Post
The Wall Street Journal
Washington Post
The Wall Street Journal
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Data Packet: Net Loss
The New York Times
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March 23, 2001
Data Packet: Net Loss
Free money: A year ago, venture capitalists were outbidding each other
for stakes in fledgling companies. Now, as failures mount, venture firms
are extracting new concessions from money-seeking entrepreneurs.
"We're finding we're really able to insist" on new conditions to limit
potential losses, said Tom Hirschfeld, managing director at J. & W.
Seligman & Co., which manages about $1.8 billion in venture funds.
Its investments include Inktomi Corp., ScreamingMedia Inc. and
Stamps.com Inc.
In four of Seligman's five most recent investments, which the firm did
not identify, it demanded and received a "liquidation preference" — a
priority claim on assets if a business fails, Mr. Hirschfeld said.
Three of the five companies set a minimum price on Seligman's holdings
should the start-up go public.
That's a stark reversal from when start-ups commanded ever-higher prices
on their way to a quick initial public offering.
"There is no question that VCs are getting more aggressive," said
Stephen Lisson, editor and publisher of InsiderVC.com, a research firm.
"Provisions such as these are among the ways firms attempt to ensure
upside for their funds."
Copyright 2014 The New York Times Company
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