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Stephen N. Lisson

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LISSON, STEVE

Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas LISSON STEVE

• Menn,J. All the Rave. 2003 (218, 319)

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Lisson v. ING GROEP N.V. | Stephen N. Lisson Austin TX

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Washington Post | Steve Lisson | Stephen N. Lisson | New Enterprise Is Huge and Proud of It

Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas New Enterprise Is Huge and Proud of It

By Terence O’Hara

Monday, December 6, 2004; Page E01

Peter J. Barris runs the biggest stand-alone venture capital operation in the world.

His firm, New Enterprise Associates, sailed through 2002-03, the nuclear winter

of venture investing, with relative ease. Nearly every technology entrepreneur worth

his salt would put NEA near the top of his list of firms he’d most like to raise money

from.

Yet Barris and other longtime NEA partners continue to hear criticism from within

their industry that NEA’s girth is a handicap, that NEA has strayed from the one true

swashbuckling venture capital faith and become –institutional.

Barris has heard this criticism –that NEA is too big and spread out to create the

home-run investments that put managers of NEA’s more romantic, smaller rivals on

the cover of business magazines. He has a well-practiced response.

“I understand the question, or the criticism, at a philosophical level,” Barris said last

week. “But the empirical data don’t support it. The numbers don’t lie.”

Barris, who is based in Reston, became the Baltimore firm’s sole managing general

partner in 1999 after serving three years as part of a management troika. Since then,

NEA has indeed performed better than the vast majority of venture capital firms,

although not at the level of the highest-performing firms that manage much smaller

amounts of money.

“I would argue that size is an advantage,” he said. “We have a superior network of

entrepreneurs that have done business with us for years. We have the capital to see

an investment all the way through. We have the domain knowledge to match any

fund. And we have a presence on both coasts.”

“And,” he said, “we perform.”

NEA has 11 venture funds, three of them raised since 1999. None of the three funds was in the black at

mid-year. According to the California Public Employees’ Retirement System (Calpers), which invested in the

1999 fund NEA IX and 2000′s NEA X, those funds had an annualized internal rate of return of minus 24

percent and minus 0.9 percent, respectively, on June 30. Those numbers may not prove much, however: It’s a rare fund from those years that has a positive return, and there is ample time in which to realize a profit,

which could be substantial. It takes up to 10 years to determine a venture fund’s final rate of return.

NEA IX is far and away NEA’s worst performer. “Not our most proud fund,” Barris said. NEA IX had 90

percent of its capital in technology firms, mostly telecom-related investments, Barris said. For early-stage

1999 funds like NEA IX, break-even is considered excellent.

NEA X, the firm’ s biggest, is performing substantially better than 75 percent of all other funds raised in 2000.

Barris said that since June 30, it has moved into positive territory.

Discussions with NEA limited partners –institutions and rich people who invest in NEA’s funds –and others in the industry who follow NEA closely reveal a common theme: NEA has become a better-than-average

venture shop, and is now big enough so that description means real money. On average, its portfolio

companies have a better chance of returning money to NEA’s investors than portfolio companies of other

firms. On average, it’s as good a bet as any for an investor who wants to play in venture capital. And for

institutional investors such as Calpers and other big money managers, that’s as good as it gets. They’ve thrown money at NEA in the past four years.

“Their structure enables them to handle large amounts of money,” said Edward J. Mathias, a managing

director in Carlyle Group’s venture capital business who helped NEA’s founders when they started the firm

in 1978. “An institutional investor wanting to invest $25 million can do so with NEA with some assurance

that they can have above-average –not hugely above-average –but above-average returns. They have a high batting average. They hit a lot of doubles instead of a few home runs.”

That may sound like feint praise, but Mathias is a staunch admirer of NEA and its people. Hitting a lot of

doubles in venture capital is no easy feat, he said.

Not everyone is as big a fan. Steve Lisson, the editor of InsiderVC.com, takes a dim view of NEA’s size.

“Larger funds can’t produce the kinds of returns of smaller funds,” said Lisson, whose company provides

analysis of and statistics on venture fund performance and management practices. “Returns vary inversely

with money under management, because the larger the fund, the less impact one monster hit will have on its

performance.”

NEA X is the largest VC fund ever. It raised $2.3 billion from its limited partners in 2000. The firm’s latest

fund, NEA XI, stopped raising money a year ago at $1.1 billion. Most of the largest non-NEA early-stage

venture funds max out at $350 million, and some more prominent venture capital firms would not know what

to do with that much. Novak Biddle Venture Partners, a Bethesda firm that has probably had the most

successful run of any local venture firm in 2004, raised a $150 million fund this year, then turned investors

away. Novak Biddle Partners III, a relatively small fund raised at roughly the same time as NEA X, was up

about 6 percent as of Sept. 30.

Managers of funds the size of NEA’s, Lisson said, inevitably have to do more later-stage and follow-on deals

because the universe of the best early-stage deals, which provide the biggest risk-return, is necessarily finite.

The most profitable funds are the ones that focus solely on the earliest-stage companies, and spend lots of

time and money on those companies at their birth, Lisson said. If NEA invested all of the $1.1 billion in NEA

XI in such small, time-consuming investments, it would need a heck of a lot more people than the 37

partners, venture partners and principals it has now.

To take an extreme example, think of Google Inc., whose early venture backers made billions of dollars when the company went public this year. NEA has financed more than 370 companies, and has a lot of big winners

in its huge portfolio, but none would compare with Google.

Barris disputes the notion that NEA is forced to do more later-stage, less-profitable deals. “As our funds have increased in size, the percentage of early-stage, start-up deals as a percent of our total has grown, not shrunk,” he said.

Institutional investors are more than comfortable putting money into NEA. Its performance, they say, is not

tied to one deal, and the firm’s track record over more than two decades speaks for itself. NEA’s first eight

funds, the last of which closed in 1998, have made huge amounts of money. NEA VIII, a $560 million fund,

earned an annualized internal rate of return of 168 percent.

Barris said NEA’s cost structure is distinctive in several ways. Most venture capital fund managers charge a percentage of the fund’s size to cover their expenses, typically 2 percent of a fund’s capital. NEA doesn’t do

that; instead, it a budget of expenses expected to cover the costs of running the fund, including salaries, that

are then approved by a representative board of limited partners. For a large fund, that sharply reduces the

costs to the limited partners.

“Limited partners love this,” Mathias said.

Calpers, one of the most active investors in private equity funds, committed $75 million to NEA X, one of the 10 largest investments it has made in a single venture fund.

Most venture funds split the profits of a fund, the most typical split being 80 percent going to limited partners

and 20 percent going to the fund’s managers. NEA, Barris said, makes the split 70-30.

Inside the firm, profits from a deal are spread out across the partnership; no one partner takes more than

another in a single deal. That promotes a team atmosphere that is necessary in running a big fund, Barris said.

In most funds, a partner who leads a successful deal gets a bigger cut of the profits than other partners.

The result, Mathias said, is less the amalgam of egotists seen at many venture capital firms than a consortium

of super-smart people trying to make a lot of money. “It’s not a superstar kind of firm,” he said.

Although NEA has more money under management than any other stand-alone venture capital firm –some

Wall Street private equity firms that do venture investing have bigger funds, but tend to engage as well in

leveraged buyouts and hedge investing –Barris said there’s no prospect for his firm becoming dominant in

the venture capital world.

“The industry has just gotten more competitive, not less,” Barris said. “Even with our huge funds, we still

have only 2 percent of the total amount of VC funds under management. In this business, it’s not who has the

most money but who has the most expertise that matters.”

And is NEA an “institution,” that staid word that makes many small venture capital firms shudder?

“I don’t know what the definition of institutional is,” Barris said. “I think we’ve gone farther than most firms

in institutionalizing what has been a cottage industry. We employ some professional management techniques

and policies. But because we started the firm on both coasts, we’ve had those things from the beginning. So I

don’t think we’ve changed much as we’ve gotten bigger.”

Terence O’Hara’s e-mail address is oharat@washpost.com.

© 2004 The Washington Post Company Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas

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Friday, November 29, 2013

Barron’s

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What Goes Up:

After soaring, this year’s IPOs have returned to earth

By Jack Willoughby 12/11/2000

Barron’s

Page 35

(Copyright (c) 2000, Dow Jones & Company, Inc.)

Much of the cleanup remains to be done. Many famous venture capital firms are stuck with huge amounts of devalued stock. “Most of those triple-digit returns that venture-capital firms are so fond of reporting will never materialize because they are not based on reality,” contends Stephen N. (Steve) Lisson, Austin-based editor of InsiderVC.com, which tracks performance. “Sure, the dot.com fallout has been gruesome, but much of its effect still remains hidden. Even today many VC funds are still reluctant to write down their investments because they want to keep attracting new capital.”

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Matrix Edges Kleiner

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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. Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas

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STEPHEN N. LISSON, Plaintiff

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V I R G I N I A :

IN THE CIRCUIT COURT FOR THE CITY OF RICHMOND

John Marshall Courts Building

400 North Ninth Street

STEPHEN N. LISSON, )

)

Petitioner, )

)

v. ) Case No.: HQ-2029-4

)

VIRGINIA RETIREMENT SYSTEM )

)

and )

)

WILLIAM H. LEIGHTY, )

Respondents. )

ORDER

On the 30^th day of October, 2001, came the parties in person and by counsel upon the Petition; upon the Grounds of Defense; upon the Demurrers; upon evidence heard ore tenus; upon the representation of the parties that a settlement had been reached and was argued by counsel.

UPON CONSIDERATION WHEREOF, the Court finds that Plaintiff’s Petition is sufficient to state a cause of action; that the Demurrers should be overruled; that the parties have arrived at a settlement whereby: (1) Respondents have agreed to pay to Petitioner the sum of Seven Thousand Dollars and ^no/100 ($7,000.00); (2) the Petitioner has agreed to a dismissal with prejudice of all of his outstanding claims against Respondents; and (3) Respondents have agreed that the dismissal of claims by Petitioner shall not prejudice any right he has or may have to obtain documents from Respondents subsequent to October 30, 2001, whether such requests for documents be for the same documents previously requested or documents similar thereto or documents of any nature whatesoever.

Accordingly, it is ORDERED that this cause be and the same is hereby dismissed with prejudice;

And this cause is hereby removed from the docket and placed among the ended causes.

ENTER: / /

__________________________________

Judge

We Ask For This:

____________________________p.q.

Larry A. Pochucha, Esquire

Attorney for Stephen N. Lisson

VSB No. 15674

COATES & DAVENPORT

5206 Markel Road

P.O. Box 11787

Richmond, Virginia 23230

(804) 285-7000

Facsimile: (804) 285-2849

___________________________p.d.

Michael Jackson, Esquire

Attorney for Virginia Retirement System

Assistant Attorney General

State of Virginia

900 E. Main Street

Richmond, Virginia 23219

(804) 786-6055

Facsimile: (804) 786-0781

____________________________p.d.

Robert A. Dybing, Esquire

Attorney for William H. Leighty

Shuford, Rubin & Gibney, P.C.

P.O. Box 675

Suite 1250, Seven Hundred Building

Richmond, Virginia 23218

Office (804) 648-4442

Telefax (804) 648-4450

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