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Stephen N. Lisson, Austin TX Stephen Lisson, StephenNLisson, Stephen N. Lisson, Austin Texas, Austin TX Thursday, January 16, 2014 Data Packet: Net Loss 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 http://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 Posted by Steve Lisson at 8:17 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen Lisson, Stephen N. Lisson, StephenNLisson, Steve Lisson Newer Post Older Post Home Blog Archive ▼ 2014 (3) ▼ January (3) http://txcourts.wordpress.com/http://texascourts.wordpress.com/ Data Packet: Net Loss ► 2013 (3) About Me Steve Lisson Steve Lisson | Austin TX | Stephen N. Lisson | Austin Texas | Steve Lisson Austin TX | Stephen N. Lisson Austin Texas View my complete profile

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December 1, 2013 AUSTIN, Austin Texas, Austin TX, Lisson, LISSON STEPHAN, LISSON STEPHEN N, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX, Steve Lisson Austin TX Steve Lisson, TEXAS, Travis County Texas Leave a comment

Steve Lisson | Steve Lisson Austin TX Steve Lisson, Austin TX, Steve Lisson Austin TX, Stephen N. Lisson, Austin Texas, Stephen N. Lisson Austin Texas 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 Steve Lisson, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, (512), 512, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, Lisson, Steve Steve Lisson, STEVE LISSON, AUSTIN, TX, STEPHEN N. LISSON, TRAVIS COUNTY, TEXAS, (512), 512, LISSON STEPHEN N., STEVE N. LISSON, STEVE, LISSON, Lisson, Steve 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.” ——————————————————————————– © Copyright 2000, internet.com Corp. All Rights Reserved. Legal Notices, Privacy Policy, Reprints. 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 Posted by Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) at 8:46 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: (512), 512, AUSTIN, LISSON, LISSON STEPHEN N., STEPHEN N. LISSON, Steve, STEVE LISSON, STEVE N. LISSON, TEXAS, TRAVIS COUNTY, TX Home Subscribe to: Posts (Atom) Blog Archive 2012 (1) July (1) Steve Lisson, STEVE LISSON, AUSTIN, TX, STEPHEN N…. About Me Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) View my complete profile Posted by Stephen N. Lisson at 10:14 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX 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 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 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, 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 12:54 PM 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 2012 (1) July (1) STEVE.LISSON, STEVE LISSON, STEPHEN LISSON, STEPHA… About Me Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) View my complete profile Posted by Stephen N. Lisson at 10:12 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX Universal, EMI Sue Napster Investor – Steve Lisson Austin TX Universal, EMI Sue Napster Investor – Steve Lisson Universal, EMI Sue Napster Investor – Steve Lisson STEVE.LISSON, STEVE LISSON, FACEBOOK, LINKEDIN, STEPHEN N. LISSON, COURT, STEPHEN LISSON, LISSON STEPHEN, 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, PINTEREST, TUMBLR Classic Flipcard Magazine Mosaic Sidebar Snapshot Timeslide 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, FACEBOOK 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 2013 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 Stephen N. “Steve” Lisson, Austin, Travis County, Texas (512) Labels: AUSTIN COURT FACEBOOK LISSON STEPHAN STEPHAN LISSON STEPHAN N. LISSON STEPHEN LISSON STEPHEN N. LISSON STEVE LISSON STEVE.LISSON TEXAS TRAVIS COUNTY TX Posted by Stephen N. Lisson at 10:09 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX Steve Lisson Austin TX Steve Lisson, Austin, Texas Stephen N. Lisson, Austin, Texas 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 WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS What’s a VC to Do? Sitemap Stephen N. Lisson, Austin, Texas Steve Lisson Austin TX Stephen N. Lisson, Austin, Texas Home Stephen N. Lisson Austin TX 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 Steve Lisson Austin TX 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 Posted by Stephen N. Lisson at 10:01 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX Stephen N. Lisson, Austin, Texas Stephen N. Lisson, Austin, Texas 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 Posted by Stephen N. Lisson at 9:41 AM Email ThisBlogThis!Share to TwitterShare to Facebook Labels: Austin Texas, Austin TX, Stephen N. Lisson, Stephen N. Lisson Austin Texas, Steve Lisson, Steve Lisson Austin TX Home Subscribe to: Posts (Atom) Blog Archive 2013 (5) December (5) Rumors of Benchmark’s Demise Greatly Exaggerated -… Elite VC giants still investing – Steve Lisson, St… Universal, EMI Sue Napster Investor – Steve Lisson… Steve Lisson Austin TX Stephen N. 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Thursday, October 16, 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

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

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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.

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Matrix Edges Kleiner

by Paul Shread

January 29, 2001–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.

Using the data of Steve Lisson, editor of InsiderVC.com, who tracks VCs’ performance and considers Matrix and Kleiner the top VCs, we applied a metric suggested by former Flatiron partner Dan Malven, which we will call the “Malven Metric.”

Malven suggested the metric after our piece comparing Kleiner’s performance in the IPO market last year with four other firms. In short, we divide overall performance by the number of partners, thus measuring wealth created per partner.

Malven cautions that that measure of performance could be skewed if each partner at one firm has a lot more to invest than partners at another firm, but Kleiner and Matrix appear pretty evenly matched. Matrix IV in 1995 was a $125 million fund (and had distributed 11 times that amount to its limited partners by the middle of last year, according to Lisson), and Matrix V in 1998 was a $200 million fund that had already distributed four times its LPs’ capital by mid-2000. Using the conservative figure of five partners during the time that 2000 IPOs were being funded, that means Matrix partners had $65 million each to work with. (We did not include Matrix VI, a $304 million fund that was only 30% invested as of June 30 last year.)

Kleiner VIII in 1996 was a $299 million fund that had returned 12 times its LPs’ capital by mid-2000, according to Lisson. Kleiner IX in 1999 was a $460 million fund that was 80% invested by mid-2000. Using the conservative figure of 13 partners, Kleiner partners had $58 million each to work with.

Now on to the 2000 results. Ten of Kleiner’s companies went public in 2000 (0.77 IPO per partner), compared to 4 for Matrix (0.80 IPO per partner). Kleiner’s stake in those companies was worth about $2.3 billion when the lock-up period expired (one company, Cosine Communications, is still in lock-up, and Kleiner’s stake in the company is worth about $100 million). Matrix’s stake in its four IPOs was worth about $1.6 billion when they came out of lock-up. That gives Matrix a per-partner return of $320 million, and Kleiner $177 million, giving the edge in per-partner wealth creation to Matrix.

A few caveats on those results. First, we measured performance in the IPO market only; we did not look at acquisitions, the number of which often exceeds IPOs in a given year. Second, Kleiner has two health care partners, according to Malven. Since health care companies had a tough year in the IPO market last year (Kleiner had no health care IPOs), reporting the results based on IT partners only raises Kleiner’s per-partner wealth creation to $209 million. We certainly want our top VCs to focus on the future of health care regardless of market conditions, and there’s been quite a debate going on within the venture capital industry about IT versus health care investing. The third caveat is that Kleiner IX is the newest of the funds measured, so that too could give Matrix an edge. But don’t feel too bad for Kleiner; according to Lisson, 6-year-old Kleiner VII was the best-performing venture fund last year, still riding high on its monster hit Juniper Networks (NASDAQ:JNPR). That fund has returned more than 20 times its limited partners’ capital.

Matrix’s big hit of 2000 was Arrowpoint Communications, which netted Matrix $1 billion when it was acquired by Cisco (Nasdaq:CSCO) in June. Kleiner had holdings in three IPOs that were worth $500 million or more when they came out of lock up: ONI Systems (Nasdaq:ONIS), Handspring (Nasdaq:HAND) and Corvis (Nasdaq:CORV).

It’s not clear when or if the VCs sold shares in the IPOs. Cisco’s stock, for example, has declined almost 40% since the Arrowpoint deal closed. Kleiner’s biggest winners have held their value since the lock-up period expired, but both companies had holdings that declined substantially from their lock-up expiration price.

Both firms also had about $2 billion each in 1999 IPOs that came out of lock-up in 2000, giving Matrix the “Malven Metric” edge there too.

But as Lisson pointed out, “This is splitting hairs amidst the pinnacle of the field. A fun, interesting and worthwhile analysis, but the distinction makes no difference to investors in these funds. The amounts of money involved are trivial when viewed in context, the venture capital segment in the alternatives portion of an entire portfolio. Nonetheless, the LPs of both Kleiner and Matrix can thank their lucky stars to be in these funds. It is amazing how these and a few other elite firms can put so much distance between themselves and the rest of field, repeatedly, in bad times as well as good.”

And finally, a follow-up to last week’s column on Summit Partners, the most recent firm to join the elite $2 billion fund club. Lisson had this to say of Summit: “As a private equity investor, Summit can outperform some early-stage VCs, the reverse of how it’s supposed to work. Now that’s a firm where unquestionably ‘there’s something in the water’ consistently over the years.”

Corey Ostman of Alert-IPO and Mary Evelyn Arnold of VC Buzz provided research for this article.

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