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Rumors of Benchmark’s Demise Greatly Exaggerated | Steve Lisson | Austin, Texas

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WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS

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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: 11/12/2000 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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January 24, 2014

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InsiderVC.com pierces the VC industry’s verbal fog – Stephen Lisson, StephenNLisson, Austin Texas

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January 18, 2014

2014 Stephen Lisson

Transparency. Let’s have a round of applause for CalPers, the giant state pension fund, for transparency. Beth Healy of the Boston Globe (8/17/2001) reports Money managers aghast that pension investor shows returns, rankings. It’s a report card that has rocked the secretive venture capital world, and one that even the `A’ students didn’t care to see displayed on the refrigerator. Calpers, the giant California pension fund that sets trends for many large investors, has posted on its Web site the performance of every venture or buyout fund in which it’s invested for the past decade. Firms typically guard these numbers carefully, but the Calpers chart even says which funds are meeting expectations, and which are disappointments. … The industry buzz around the report stems from the secrecy with which venture firms and buyout artists guard the specifics of their returns. Virtually every firm claims ”top quartile” performance, and the numbers they give out are suspect, venture analysts say. Steve Lisson of Austin, Texas, on his controversial Web site, InsiderVC.com, tracks venture returns by doing his own calculations on venture portfolios. He is the only independent source on such numbers and has drawn fire from some venture capitalists for breaking the code of silence. … over the long term, Calpers has been doing something right. As of March 31, its average annual return for 10 years of private equity investing was 17.5%. The Wilshire 2500 Index, a broad stock market benchmark, was up 13.9% in that period. Would that the federal government would do the same with alleged investment programs like SBIR. Carl Nelson Consulting http://www.carl-nelson.com/government2001.htmPublished by Carl Nelson Consulting, Inc, 1325 18th St NW, Washington DC 20036

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What’s a VC to Do?

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What’s a VC to Do?

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What’s a VC to Do?

Shelley Pannill, Forbes ASAP, 09.10.01

Someone’s always looking for a bargain.

As thousands of new economy startups crashed and burned this past year, speculation mounted that the venture capitalists they once enriched were now cautiously sitting on pots of gold and playing golf. But the VCs we talked to say it’s only the limited partners, the investors behind the venture funds, who get to perfect their putts.

So what are these high-powered moneylenders up to now?

Damage control. VCs, like the rest of us, have lost a lot of money lately. Some 25% are expected to go out of business over the next several years. “Sometimes your widget doesn’t widge,” says Alan Salzman, founding partner at VantagePoint Venture Partners. He should know. His firm recently faced the grim task of writing severance checks after one bankrupt portfolio company’s management team had squandered its money. Then there’s the job of smoothing things out at companies that survived but were merged, downsized, or acquired. Says Philip Gianos of InterWest Partners: “I’m acting like a marriage counselor, which is a full-time job right now.”

Scouring the ocean floor. Last year, says one observer, “You felt lucky to be able to invest in a new technology startup.” This year, VCs get to play God, waiting to invest until impoverished companies are desperate for cash. “I’ve been out bargain shopping,” says Heidi Roizen of Softbank Venture Partners, sipping chardonnay on a rolling lawn at the Atherton, California, home of a fellow VC. “I can’t believe these valuations!”

Revisiting old friendships. Last year’s “shootouts” for deals have subsided. VCs are again finding synergies with competitors. “The tourists are gone,” says Accel Partners über investor Jim Breyer, alluding to the rush of cash-happy hobbyists–both individuals and companies–combing the landscape for gold in recent years.

Business as usual. Sort of. VCs are doing what they do best: investing in startups, although the pace has slowed. According to research firm Venture Economics, VC investments have fallen by nearly two-thirds, from $27.2 billion in Q2 last year to $10.6 billion in Q2 this year. Still, they’re actually spending more this year in some sectors, such as wireless, biotechnology, fiber optics, and data storage. E-commerce, of course, was the big loser, with VC investing sinking from $210 million in the first quarter of last year to $3.3 million by the fourth quarter.

But venture capitalists had better keep investing, warns Steve Lisson, who runs the popular InsiderVC.com. According to data tracker VentureOne, 27 venture capital firms have completed raising funds of more than $1 billion each since the start of the dot-com doldrums in spring 2000. Says Lisson: “They’ve got to use it or lose it.”

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Monday, December 2, 2013

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Financial Investors? Us?

InsiderVC.com pierces the VC industry’s verbal fog.

1 April 01 12:14, Tsafrir Bashan Stephen N. Lisson, Austin, Travis County, Texas, Steve Lisson, Austin, Travis County, Texas

Anyone carefully following the venture capital industry in Israel and overseas recognizes the routine. Managing partners talk at length and with great passion, but with very little substance. They gossip endlessly about the industry. What about the industry’s numbers? “We don’t disclose private data,” is the stock reply from industry players.

Today, for example, everyone knows that the situation is bad, but it is hard to say who exactly is in a bad position. You won’t find a fund partner talking animatedly about a company shutting down or about a down round. The most you can expect is an admission that not everything is perfect.

The absence of data is both odd and entertaining, particularly for an industry in which capital, finances, and yield are the key words. Without figures on the amount of a company’s holdings or valuations, the pompous phrase, “added value,” is all the venture capital industry has left to talk about. It is difficult to find a financial industry at any point in history that has provided so few figures. (Venture capital is a professional investment industry, regardless of how many partners talk about opening doors and assistance in recruiting executives).

Against this rather frustrating background, it is worth consulting the US web site insiderVC.com. The site provides data for companies in the industry, such as profit and loss allocations between the general partner and the investors (the carry), the exact rate of management fees, and exact investments and valuations for portfolio companies at the various financing rounds. Of course, the site also includes derivative data, such as the internal rate of return (IRR) and the realization ratio. In other words, it provides the tools needed to compare various organizations and even different funds within the same organization, information you will not get from your local venture capital management partner.

In order to gain access to all this data, you have to pay a considerable fee, but you can get a preview of the statistics and a sample of site editor Stephen Lisson’s sharp tongue free of charge. You won’t find better material on the web.

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2014 Stephen Lisson

Transparency. Let’s have a round of applause for CalPers, the giant state pension fund, for transparency. Beth Healy of the Boston Globe (8/17/2001) reports Money managers aghast that pension investor shows returns, rankings. It’s a report card that has rocked the secretive venture capital world, and one that even the `A’ students didn’t care to see displayed on the refrigerator. Calpers, the giant California pension fund that sets trends for many large investors, has posted on its Web site the performance of every venture or buyout fund in which it’s invested for the past decade. Firms typically guard these numbers carefully, but the Calpers chart even says which funds are meeting expectations, and which are disappointments. … The industry buzz around the report stems from the secrecy with which venture firms and buyout artists guard the specifics of their returns. Virtually every firm claims ”top quartile” performance, and the numbers they give out are suspect, venture analysts say. Steve Lisson of Austin, Texas, on his controversial Web site, InsiderVC.com, tracks venture returns by doing his own calculations on venture portfolios. He is the only independent source on such numbers and has drawn fire from some venture capitalists for breaking the code of silence. … over the long term, Calpers has been doing something right. As of March 31, its average annual return for 10 years of private equity investing was 17.5%. The Wilshire 2500 Index, a broad stock market benchmark, was up 13.9% in that period. Would that the federal government would do the same with alleged investment programs like SBIR.

Carl Nelson Consulting

http://www.carl-nelson.com/government2001.htm

Published by Carl Nelson Consulting, Inc, 1325 18th St NW, Washington DC 20036

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Thursday, March 5, 2015

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Friday, March 06, 2015

Washington Post | New Enterprise Is Huge and Proud of It

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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.

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Rumors of Benchmark’s Demise Greatly Exaggerated | Steve Lisson | Austin, Texas

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Monday, February 23, 2015

Scenes from the INITIATE!! Salute to the Dream Team of Austin High-Tech

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Vol. 1, No. 1: Table of Contents | Steve Lisson

INITIATE The Management Magazine for Technology Ventures, Corporate

Intrapreneuring and Sources of Capital

VOL.1 NO.1 Contents Premiere Issue

Departments

Inside this Issue

How to subscribe to INITIATE!!

INITIATE!!’s “Thank You”

Company Index

Index to Advertisers

Features

Cover Story: “The Dream

Team”–Austin’s Best and Brightest

Technology Executives

A profile of 50 executives named by their

peers to management positions in a mythical

all-star corporation.

Dream Team II’ CEO??

Interview: Kenneth P. DeAngelis,

General Partner, Austin Ventures

“Again, some of these questions I can’

answer because it would take days to talk

about…

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March 2015 Profiles | Steve Lisson | Austin TX | Wikipedia | Steve Lisson Directory

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RESEARCH | BUSINESS PLAN

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RESEARCH | BUSINESS PLAN

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Friday, March 13, 2015

INITIATE PUBLICATIONS | LEGISLATIVE INFORMATION NETWORK CORPORATION (LINC) | STEVE LISSON: A Few Random Observations | Steve Lisson

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RESEARCH | BUSINESS PLAN

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Déjà Vu All Over Again | Steve Lisson

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InsiderVC.com pierces the VC industry’s verbal fog

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Déjà Vu All Over Again | Steve Lisson

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INITIATE PUBLICATIONS – STEVE LISSON – AUSTIN TX – LINC – LEGISLATIVE INFORMATION NETWORK CORPORATION – STEPHEN N. LISSON

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INITIATE PUBLICATIONS | LEGISLATIVE INFORMATION NETWORK CORPORATION (LINC) | STEVE LISSON

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TINDER | SNAPCHAT | INSTAGRAM | iTUNES | STEVE LISSON | AUSTIN TEXAS

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Steve Lisson | Austin, TX | April 2015

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Public Relations | Membership Manager | STEVE LISSON | Austin, TX | Saturday, April 18, 2015

Public Relations | Membership Manager | STEVE LISSON | Austin, TX | Saturday, April 11, 2015

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STEPHEN N. LISSON | AUSTIN TEXAS | STEVE LISSON | AUSTIN TX

Tuesday, March 17, 2015

Friday, March 20, 2015

WALTHAM’S MATRIX LEADING VENTURE PACK ON BOTH COASTS

InsiderVC.com pierces the VC industry’s verbal fog – Stephen Lisson, StephenNLisson, Austin Texas

Friday, January 24, 2014