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WALTHAM'S MATRIX LEADING VENTURE PACK ON BOTH COASTS
WALTHAM'S MATRIX LEADING VENTURE PACK ON BOTH COASTS
Steve Lisson Austin Texas Stephen Lisson Austin Texas Stephen N. Lisson Austin Texas InsiderVC.com InsiderVC Insider VC
WALTHAM'S MATRIX LEADING VENTURE PACK ON BOTH COASTS
FIRM CREDITS DISCIPLINE, INSISTENCE ON LEAD ROLE FOR STUNNING '90S RETURNS
Author: By Beth Healy, Globe Staff Date: 11/12/20 Page: D1 Section: Business
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."
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Waltham's Matrix Leading Venture Pack on Both Coasts
Waltham's Matrix Leading Venture Pack on Both Coasts
Firm credits discipline, insistence on lead role for stunning '90s returns
Firm credits discipline, insistence on lead role for stunning '90s returns
By Beth Healy, Globe Staff | November 12, 2000
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."
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Stephen N. Lisson Steve Lisson | Stephen Lisson | Stephen N. Lisson | Stephan Lisson | Austin Texas Steve Lisson | Stephen Lisson | Stephen N. Lisson | Austin Texas Link | January 15, 2014 http://elitevcgiantsstillinvesting.blogspot.com/ Elite VC giants still investing – Steve Lisson, Stephen N. Lisson, Austin, Travis County, TX 512 STEVE.LISSON, STEVE LISSON, STEPHAN N. LISSON, STEPHAN LISSON, STEVE LISSON, AUSTIN, TX, TEXAS, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER 2014 STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST Universal, EMI Sue Napster Investor STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST, COURT, FACEBOOK, LINKED IN Sitemap STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST STEVE.LISSON, FACEBOOK, LINKEDIN, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST 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. Los Angeles Times Articles Copyright 2012 Los Angeles Times Terms of Service | Privacy Policy | Index by Date | Index by Keyword STEVE.LISSON, FACEBOOK, LINKEDIN, COURT, STEVE LISSON, STEPHEN LISSON, COURT, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, COURT, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, TUMBLR, PINTEREST Recent Site Activity| Posted by Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) at 11:41 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: AUSTIN, LISSON STEPHAN, LISSON STEPHEN N., STEPHAN LISSON, STEPHAN N. LISSON, STEPHEN LISSON, STEPHEN N. LISSON, STEVE LISSON, STEVE N. LISSON, STEVE.LISSON, TEXAS, TRAVIS COUNTY, TX STEVE.LISSON, STEVE LISSON, STEPHEN LISSON, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, STEVE.LISSON, STEVE LISSON, STEPHEN LISSON, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, 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. Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX, Steve Lisson Austin TX, Stephen Lisson Austin Texas Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX STEVE.LISSON, STEVE LISSON, STEPHEN LISSON, STEPHAN N. LISSON, STEPHAN LISSON, LISSON STEPHAN, AUSTIN, TX, TEXAS, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, INSIDER, VC, INSIDERVC, INSIDERVC.COM, (512), STEPHEN.LISSON, FACEBOOK, LINKEDIN, LINKED IN, TWITTER, Posted by Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) at 11:30 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: AUSTIN, LISSON STEPHAN, LISSON STEPHEN N., STEPHAN LISSON, STEPHAN N. LISSON, STEPHEN LISSON, STEPHEN N. LISSON, STEVE LISSON, STEVE N. LISSON, STEVE.LISSON, TEXAS, TRAVIS COUNTY, TX Home Subscribe to: Posts (Atom) Blog Archive 2013 (2) December (2) STEVELISSON, STEVE.LISSON, FACEBOOK, LINKEDIN, STE… STEVE.LISSON, STEVE LISSON, STEPHEN LISSON, STEPHA… About Me Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. 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Stephen Lisson Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Skip to content Home About Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX January 16, 2014 Leave a comment Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX, Steve Lisson Austin TX, Stephen Lisson Austin Texas 2014 How to rate a venture capital firm – Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX, Steve Lisson Austin TX, Stephen Lisson Austin Texas Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX, Steve Lisson Austin TX, Stephen Lisson Austin Texas 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 ABOUT US TERMS OF SERVICE ETHICS POLICY HELP Copyright 2003 RHC Media, Inc. http://www.redherring.com Steve Lisson | Stephen Lisson | StephenNLisson | Stephen N. Lisson | Austin Texas | Austin TX Steve Lisson, Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX, Steve Lisson Austin TX, Stephen Lisson Austin Texas Posted by howtoratea venturecapitalfirm at 9:00 PM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen Lisson, Stephen Lisson Austin Texas, Stephen N. Lisson, StephenNLisson, Steve Lisson Austin TX Home Subscribe to: Posts (Atom) Blog Archive 2013 (1) December (1) How to rate a venture capital firm – Steve Lisson … About Me howtoratea venturecapitalfirm View my complete profile Simple template. Powered by Blogger. Edit Steve Lisson Austin TX Stephen N. Lisson Austin Texas January 16, 2014 Stephen Lisson, Stephen N. Lisson, Steve Lisson Leave a comment Steve Lisson Austin TX Stephen N. Lisson Austin Texas Steve Lisson Austin TX Stephen N. Lisson Austin Texas 2014 Steve Lisson, Stephen N. Lisson 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 © Copyright 2003 Time Inc. All rights reserved. Reproduction in whole or in part without permission Privacy Policy Terms of Use Disclaimer Contact Fortune Posted by Steve Lisson at 12:21 PM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts NVCA Advocates More Confidentiality on Returns Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts vexatious litigant vexatious litigants Home Behind the VC Music Day of E-tonement Facebook Fallen VC Idols FourSquare How to rate a venture capital firm InsiderVChomepage1 InsiderVChomepage2 Instagram Kleiner Perkins Caufield & Byers: It’s good to be king NVCA Advocates More Confidentiality on Returns Pinterest Selected Buzz Descending in Chronological Order Steve Lisson Tumblr Twitter Venture Capital Financing Is Further Sapped by Events WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS What’s a VC to Do? Sitemap NVCA Advocates More Confidentiality on Returns 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. Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts vexatious litigant vexatious litigants Posted by Steve Lisson at 9:58 AM No comments: Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts 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.” Email this story – View most popular | Printer-friendly format ADVERTISEMENT Click Here to Receive 50% Off Home Delivery of The New York Times Newspaper. Archived Stories by Date: 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 lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts vexatious litigant vexatious 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 © Copyright 2013 Time Inc. All rights reserved. Reproduction in whole or in part without permission Privacy Policy Terms of Use Disclaimer Contact Fortune Sitemap Collapse all 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 Posted by Steve Lisson at 9:54 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Steve Lisson Austin TX Stephen N. Lisson Austin Texas litigation lawsuit lawsuits suit suits party parties attorney attorneys lawyer lawyers pro se judge judges court courts Steve Lisson Austin TX Stephen N. Lisson Austin Texas Steve Lisson Austin TX Stephen Lisson Austin Texas Stephen N. Lisson, Austin, Texas Home Behind the VC Music Day of E-tonement Facebook Fallen VC Idols FourSquare How to rate a venture capital firm InsiderVChomepage1 InsiderVChomepage2 Instagram Kleiner Perkins Caufield & Byers: It’s good to be king NVCA Advocates More Confidentiality on Returns Pinterest Selected Buzz Descending in Chronological Order Steve Lisson Tumblr Twitter Venture Capital Financing Is Further Sapped by Events WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS What’s a VC to Do? Sitemap 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 Apply Archives Documents Enter Home Login Parasites Sample Search Trophies About Account Chat Contact Copyright Databases Disclaimer Extranet LinkToUs MessageBoards NeedYourPasword? 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The New York Times This copy is for your personal, noncommercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers, please click here or use the "Reprints" tool that appears next to any article. Visit www.nytreprints.com for samples and additional information. Order a reprint of this article now. » 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 Home Privacy Policy Search Corrections XML Help Contact Us Back to Top
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Monday, December 2, 2013
Monday, December 2, 2013
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Sunday, December 1, 2013
Rumors of Benchmark's Demise Greatly Exaggerated - Steve Lisson, Stephen N. Lisson
Rumors of Benchmark's Demise Greatly Exaggerated - Steve Lisson, Stephen N. Lisson
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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
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.
Benchmark denies the rumors, and its limited partners say they never received the rumored letter that the fund was in trouble. An analysis of Benchmark's portfolio appears to back up the firm, which despite the rumors, may not just be surviving, but thriving.
Benchmark declined to discuss details, but the firm's holdings as of June 30 were provided by Steve Lisson, the editor of InsiderVC.com, who tracks the performance of leading venture firms for high-paying clients.
At first glance, Benchmark III had its share of overvalued B2C e-commerce firms like 1-800-Flowers.com (Nasdaq:FLWS) and Living.com. 1-800-Flowers.com was the fund's biggest investment, at $18.9 million, and had been marked down to $8.1 million on June 30. The stock price has declined about 30% since then. "There are many private scenarios just like this public one, whereby even if the company can be kept afloat long enough to enjoy some success and eventually make it to a liquidity event, the venture investors will lose money," Lisson said.
But a closer look at Benchmark III reveals a fund with several potential winners, including Internet Data Exchange System company CoreExpress, an intelligent optical networking play. That investment alone could return limited partners' money. Other potential winners include Sigma Networks, Keen.com, Netigy and BridgeSpan.
And Benchmark's newest fund, Benchmark IV, is already showing the markings of a winner, thanks to investments in Loudcloud, Netscape co-founder Marc Andreessen's latest venture, and TellMe Networks, whose valuation no doubt went up in its recent $125 million funding round.
Lisson said the Benchmark rumors reflect a misunderstanding of how venture funds operate. "There's a reason these are 10-year funds," he said. "It's called risk and illiquidity. The one monster hit could happen three, four or five years out. You can be wrong about 39 of 40 companies, and the market uncooperative, as long as one is an Inktomi. That is the history of this industry: one monster hit returning the entire fund. Singles and doubles won't get you there."
At two years of age, Benchmark III still has plenty of time to deliver a big winner. In the meantime, the firm's limited partners can enjoy the returns from Benchmark II, a three-year-old fund that has already distributed five times its partners capital, by Lisson's estimate. Benchmark II boasted big winners like Handspring (Nasdaq:HAND), Critical Path (Nasdaq:CPTH), Red Hat (Nasdaq:RHAT), and Scient (Nasdaq:SCNT). Yes, Scient. Benchmark had the foresight to distribute shares of the Internet consultant to its limited partners at 200-300 times the firm's cost.
Benchmark isn't any different from other venture firms, most of whom "drank the Kool-aid" of seemingly easy dot-com money, hoping the stock market would hold up long enough to vindicate those investments. But Lisson expects that some other firms won't hold up as well. He expects a shakeout in the industry similar to the one that hit the industry from 1987-1991, when venture firms formed during the 1980s averaged single-digit returns, and roughly 20% of new entrants couldn't return their partners' capital. VCs' own fundraising declined from $4.2 billion in 1987 to $1.3 billion in 1991. The $4 billion level of capital coming into the industry wasn't reached again until 1995.
"This is what's supposed to happen in a downturn," Lisson said. "People who shouldn't be in the business, who contributed to the excesses and didn't know what they were doing, will be forced out. It's not like this is the first time we've seen too many new entrants into the industry, or too much money chasing too few deals." And the ones that survive will have a chance to prove themselves in tough times, the ultimate mark of a winner.
Lisson said a few venture firms stand out among their peers. Matrix Partners, Kleiner Perkins Caufield & Byers and Sequoia can normally be found at the top of the charts in each vintage year they raise a fund, he said, proving that "something's in the water" at those firms. And he gives Oak high marks for consistency over a long period of time.
But even top firms have an occasional weak fund, Lisson said. "But by the time you can make that judgment about a fund, you'll have raised another fund and shown some early progress," he said. Meaning that even if Benchmark III was a weak fund, Benchmark IV could keep the firm in its limited partners' good graces for some time to come.
"The moral is consistent performance over time relative to same vintage-year peers," Lisson said. "You're never as good or as bad as your current press clippings might indicate. The real test of Benchmark's mettle will come when we can fairly evaluate whether the firm manages through and makes money, not just with small funds during the best times in the industry's history, but with larger funds in the tough times ahead as well."
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Elite VC giants still investing - Steve Lisson, Stephen N. Lisson, Austin, Texas
Elite VC giants still investing - Steve Lisson, Stephen N. Lisson, Austin, Travis County, TX 512
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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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Universal, EMI Sue Napster Investor - Steve Lisson Austin TX
Universal, EMI Sue Napster Investor - Steve Lisson
Universal, EMI Sue Napster Investor - Steve Lisson
Universal, EMI Sue Napster Investor - Steve Lisson
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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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