Stumbled across this NY Times story a few weeks ago: “Some Unrest Is Bubbling Beneath the Top Tier” on venture capital performance (free, but needs registration).
It graphically illustrates what insiders have known all along, i.e. - performance amongst VCs (and funds) varies tremendously – and talks about how LPs believe that “the industry is far less healthy than it advertises and that but for the most successful venture firms, it is struggling. ”
The article also mentions a recent NVCA meeting where LPs publicly stated that “venture capitalists on the whole have not made meaningful payouts for years to their limited partners”.
Eric Doppstadt, Director of PE for Ford Foundation put it more forcefully: “I find it shocking that an asset class that has provided so little payback continues to attract so much capital.”
This criticism has been around for a while now (see here and here) and although it is true that returns in VC have been (are?) highly concentrated, I dont think this is (or should be) be reason enough to doubt the asset class as a whole.
But something else in the article caught my eye: “According to the venture capital association, every year since 1997 the profit distributions from venture firms have been lower than the amount that they have invested” – is this simply the hangover of the dot-com bust – now in its final stages – or symptomatic of a deeper malaise (see “Beginning of the End for Venture Capital?“)?
I dont know for sure…but definitely something to think about.
Finally, here is an “estimate” from the same article that starkly illustrates the concentration of returns (attributed to Diana H. Frazier, Managing Partner at Flag Capital Management): “…(between) 1986 to 2002, only 32 firms accounted for 56 percent of money distributed”
…and this slide appears to confirm that (thanks to Pat for this)
June 4th, 2007
Posted by
Shantanu |
Venture Capital |
2 comments
I scored as low as it could possibly get*…which set me thinking – is this the right test for becoming a VC? (I can hear Tut tuts!)
Actually, Is there any right “test” for determining whether a person is well-suited for a career in VC – or more importantly, will he/she succeed?
The test misses one important thing; unfortunately it cannot be measured…and unlike the experiences and skills one has, it is entirely unpredictable and may desert you when you need it most – I am thinking *LUCK* 
.
* Yes, I know this is post-facto rationalisation, but…
I think I screwed up “Background” in a major way…missing on all the +5s and being saddled with two -5s (for my sins at LBS and Monitor) 
Note to Guy: Can I get a bonus +5 for “unusual” background? Radio DJ, Comp Engg, Mushroom farmer, Diplomat etc?
May 15th, 2007
Posted by
Shantanu |
Miscellaneous, Venture Capital, What VCs really do |
4 comments
I was going to check out The Funded* today but discovered that Jason has beaten me to it!
The site does not have many European funds but does briefly mention London Seed Capital, Atlas and Index - sadly nothing on Amadeus.
I have nothing to add to what Jason has written except to re-emphasise the following (this is for entrepreneurs and start-ups):
If you’ve dealt with (and preferably received funds from) a VC, I would recommend you post your experience on The Funded.
As for me, I will try and see if we can get a nice entry for Amadeus
.
P.S. Thanks to Barak for a great title and to Loken for the link (in response to my earlier post)
May 8th, 2007
Posted by
Shantanu |
FAQs for Entrepreneurs, Venture Capital, Venture Capital in Europe, What VCs really do |
2 comments
Ok…I admit that is an exaggeration…but one of the VC industry’s well-known article of faith is that good VCs must have some entrepreneurial experience in their past lives/careers… (see e.g. one of Guy Kawasaki’s best posts: “The Venture Capital Aptitude Test“. Update: pl. see comment below.
The main premise being of course that unless you have been an entrepreneur, you can never understand what it is to be on the other side of the table, you find it hard to empathise with management and you cannot really add value.
Is this really true? While empirical evidence may suggest a strong correlation, it would be wrong to infer a causal relationship based on that.
Why do I say that? Look at John Doerr, arguably one of the most successful VCs in silicon valley (or anywhere else for that matter)…and look at Mike Moritz (a former journalist with TIME magazine)…On the other hand, I know there is Vinod Khosla…
But that’s really not my point…
Fundamentally, VCs and entrepreneurs are on the opposite sides of the spectrum…while VCs need to act from the “buy” side: cautious/ paranoid/ careful…entrepreneurs would usually be on the sell side: exuberant, wildly optimistic, believing that anything is possible, in a hurry…
So to a certain extent, whether you will be a good VC or a good entrepreneur is “hard-wired”…and it is difficult to be both…
No wonder then that great entrepreneurs rarely make good VCs and great VCs rarely make successful entrepreneurs…
Exceptions? I am sure there are some…Vinod Khosla for instance and of course, Hermann Hauser…but not a large list, I guess…
Right…or wrong?
See also:
Will Price’s comment on this topic and an interview with Larry Sullivan which talks about this but is also very readable – on its own – as it recounts his experiences of managing a global start-up (that got incorporated in 3 countries within 3 weeks!)
Find of the Day: This interview with John Doerr (from 1997) with some timeless advice for entrepreneurs (and VCs); also here.
.
P.S. Over the coming weekend, I have promised myself to take the VCAT and am contemplating posting the results online (suicidal?)… watch this space.
May 3rd, 2007
Posted by
Shantanu |
Entrepreneurship, Venture Capital, What VCs really do |
10 comments
I had a busy but very stimulating three days in gloriously warm silicon valley last week.
A lot of that time was spent with various folks from Microsoft at the Microsoft VC Summit and I also managed to squeeze in an interesting panel discussion at TiE on “Meet the Acquirers“
The “wow” bit at Microsoft’s Summit was Peter Moore’s session during which he showcased two super-cool 60 second slots of forthcoming games on X-Box…Peter’s enthusiasm was infectious and after watching the ads, I realised why “Gears of War” made it all the way to No. 1 as “Game of the Year”.
Ed Sim has blogged about the summit in detail (and far more articulately) here as has Paul Jozefak (ex-SAP Ventures; now running his own fund) .
At the TiE Panel Discussion focused on M&A for software start-ups, there were some great comments from Mark Feldman.
Mark has spent almost 30 years in M&A in various capacities…He was also the Sr VP of Strategy at Virsa , a company acquired by SAP last year. Mark is also the author of “Five Frogs on a Log: A CEO’s Field Guide to Accelerating the Transition in Mergers, Acquisitions And Gut Wrenching Change”, that has been translated in 5 languages!
Some points from the discussion that I felt worth sharing:
- Ravi Mhatre shared his rule of thumb for valuing software companies: pre-revenue – $10m~$20m; small revenues – some multiple on the revenue; typical value being between $10m ~ $30m; fast growing, significant revenues (> $10m) – typically double-digit millions or more
- Compliance is probably the “hottest” area in terms of M&A activity by software acquirers
- “Security” is a close #2
- SalesForce is an oddity amongst software acquirers in the sense that it picks companies at a very early stage (ties in with their SaaS / AppXchange focus) and finally…
- …time-worn and blindingly obvious – but still worth repeating: The fastest way to an M&A transaction always goes through the field force and/or the product groups
March 20th, 2007
Posted by
Shantanu |
Venture Capital |
no comments
I am not sure how many of you have read this piece before…I had (about three years ago and forgotten all about it) until I stumbled upon it again – completely by chance – in the middle of a hard-disk cleanup this weekend…
In 1999, in a background research that lasted over 10 months, San Francisco Chronicle staff writers Reynolds Holding and William Carlsen investigated allegations of widespread legal and ethical misconduct in Silicon Valley.
The result of their work was this “series about the dark side of the Silicon Valley miracle.”
Starting with “Phantom Riches – Beneath glitter of SilValley, corruption and deception”, it detailed, “some of the most egregious cases of securities fraud, trade-secret theft and abuse of small entrepreneurs…”
This extraordinary account from almost 8 years ago… “is a story about greed and hubris, about high-powered executives and boardroom dealmakers who operate with flagrant contempt for the rules of law and ethics.”
A long read…but truly engrossing…
Read on.
March 9th, 2007
Posted by
Shantanu |
Entrepreneurship, Venture Capital |
one comment
The article also mentions a recent NVCA meeting where LPs publicly stated that “venture capitalists on the whole have not made meaningful payouts for years to their limited partners”.