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Waltham's Matrix leading
venture pack on both coasts: Firm credits
discipline, insistence on lead role for stunning '90s returns
There are dozens of other fine firms
with great returns. But only one can be the best. People who run
endowments and foundations corroborate Matrix's reputation. The recipe
has paid off handsomely for entrepreneurs, too. |
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Death Valley
The Bay Area is coming to terms with the
end of an era. |
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The Un-Wild Bunch
The hottest VC firm you've never heard
of.
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Behind the VC Music
Venture capitalists are the rock stars
du jour of the financial world, but a new Website reveals that some
funds pay out a lot less money to investors than you'd imagine. For
individual investors who don't have a prayer of putting their money
into funds that deal only with tech insiders, large institutions, and
foundations, analyzing exactly how much the top funds make can
certainly seem like an academic exercise. But it's important
that somebody do it.
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The inside scoop on VCs
For those who measure their worth by
their investments and their stock holdings - pretty much all of
Silicon Valley - there's a new Web site that looks to be rivaling F**kedcompany.com
for sly, subversive attention.
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Day of E-tonement
Ouch. Investors feel the pain. This
market is a bear, and it could get meaner. Much was made earlier this
year of those triple-digit internal rates of return.
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The House of Pain
(Barron's Cover Story)
Ever since the IPO rocketship crashed
to earth, the pros have been asking themselves when, or whether, the
new-issue game will revive. If bad ventures henceforth go unfunded,
all the agony may have been worthwhile. |
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Rumors of Benchmark's Demise
Greatly Exaggerated
For weeks, rumors have been
circulating in the VC community that Benchmark Capital's third fund,
Benchmark III, was in trouble, hit hard by losses in e-commerce
companies like 1-800-Flowers.com. The rumors reflect a
misunderstanding of how venture funds operate.
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From Y2K to dot-com bombs: The
year that was
Best-performing Sand Hill Road VC fund
award; Worst-performing Sand Hill Road VC fund award.
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Early-stage deals take center
stage as exit strategies blur: The advent of good times for
early-stage VCs and entrepreneurs as well
(Corrected)
The quality of many early-stage deals
and the size of the financings may actually increase. With valuations
down, the VC party is only just beginning. It's just that many VCs
don't want to admit it.
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Bonehead Safari
Who's the Dumbest VC? One
reporter's quest to lavish this ignominious award. I doubted her
investors were laughing. |
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V.C. Battle: East vs. West
Kleiner Perkins Caufield & Byers and
Matrix Partners are considered the cream of the crop among venture
capital firms, the kind of VCs that limited partners are fortunate to
be able to invest their money with. So compliments paid, we set
out to find out which was better. |
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CalPERS tightens its grip on
VC
Observers were surprised by the move,
questioning why a venture firm would want to let one of its limited
partners play a more significant role, or to share its profits with
yet another partner. |
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The thrill of defeat
TA Associates' Kevin Landry is in the venture business because it's
fun, he says. And to make money for the firm's investors and partners.
Few complaints there.
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For VCs the show is also over
(English text version)
When it's about return on investment
VCs tend to be vague and not afraid of 'window dressing', making
things look better then they are.
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KKR's 2.8 Percent
Returns Hinder Raising New Fund
(Update3)
Kohlberg Kravis Roberts & Co. is
taking a beating in the leveraged buyout business it all but created
and dominated the past 15 years. |
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High tech's bloom has
faded for Paul Allen
It is unlikely that all of Vulcan's
Internet companies will be able to raise more money in the
future. That's not bad for Vulcan. |
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Rivals? Not when they
see a good deal
It's common lore in Boston venture
circles: Where Matrix goes, North Bridge isn't far behind. |
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Balance of Power
Shifts To VCs, LPs
However, just as the most sought-after
start-ups still command some power, top venture firms will still set
the agenda. The result of the new venture environment will be a
widening divide between the top VCs and start-ups and everyone else,
conditions that could hasten a shakeout in the industry. |
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Venture Firms Seek
Protection From Price Declines on New Stakes
Liquidity preferences have been around
for 20 years and typically gain wider use in periods of declining
returns. |
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COVER STORY: Venture
Capital - Climbing the Capital Hill
Falling
valuations are a double-edged sword for venture capitalists. Venture
firms can only maintain overvalued companies on their books for so
long. At some point, you either have to toss more cash at the
money-losing enterprise or take the loss. For the right VCs, however,
all the gloom and doom may actually turn out to be a blessing. |
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Benchmark Rumors
Persist
Now the rumor is that the firm's
latest fund, Benchmark IV, is the one that's in trouble. No doubt
Benchmark is holding its share of losing investments from the Internet
craze. But so are a lot of other name firms. |
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Financial investors?
Us? InsiderVC.com pierces the VC industry's verbal fog
Managing partners gossip endlessly
about the industry. |
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As Start-Ups Fail,
Venture Investors Back Out in Droves
Financing: The stampede to put money
into tech has reversed direction, with some partners selling out at a
loss. |
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Funds nationwide are
seeing red
Investors in Matrix Partners, a
Waltham venture group that is arguably outperforming everybody else in
the business, aren't complaining about the downturn. Yes, they may
have gotten an astounding 19 times their money back on Fund IV
launched in 1995. But they've also already reaped 12 times their
original capital in the 1998 Fund V. |
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Idealab's Identity
Crisis
With only 40 percent of funds
invested, Fund II could be a hit or a bust, depending on how good its
future investments are. This explains in part why Clearstone wants
distance from Idealab. |
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How to rate a venture capital
firm
Venture capital is like baseball
without the stats. There are great arguments about who's the best --
and worst -- VC around. But unlike baseball fans, those who follow
venture capital have scant data on which to base their opinions.
Until now.
As part of our annual Red Herring 100, we set out to determine
the top ten VC firms using the best metrics we could come up with. To
our knowledge, this is the first time anyone has come up with a list
based on more than a single metric, such as the internal rate of
return (IRR).
Before we get into each of the ten factors we examined, allow us a
brief explanation as to why we didn't include the most common metric:
IRR. IRR is a number determined by each VC firm, and although it's
bandied about frequently, it can be easily tweaked to make a firm look
like it's doing better than it actually is. It isn't uncommon for a VC
that isn't performing very well to inflate its IRR by counting its own
"carry," the money it makes from investments, into its IRR.
The only real way to know how a VC firm is performing is to look at
its disbursements to its limited partners (LPs). This is the actual
stock or money that VCs get from a liquidity event -- that is, a
portfolio company's IPO or its sale to another company. The only
problem is, VCs don't want to share this information. |
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Truth in
Numbers
Deciding which VC firms
are great requires determining which measurements really matter.
Among our criteria, disbursements to investors may be the truest
indicator of a firm's success.
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U.S. Venture Returns
Slipped In The Fourth Quarter
The
news wasn't all bad. Some top-performing funds that had "negative
returns" not just in the fourth quarter, but for the entire year,
actually distributed quite heavily to limited partners. Much of the
appreciation in such funds had already been factored into the IRRs. |
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Good news outweighs bad for
Battery
Gone was the euphoria of last year, when
the Wellesley firm announced it was raising a billion-dollar fund. This
year the big money was expressed in paper losses.
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Fallen Idols - High-profile
and respected VCs weren't able to resist the Internet bubble. Now many
are paying the price with troubled funds.
Venture capital firms information about
their funds' performance, especially the current valuation of their
investments, point to a fund in trouble. While any fund raised during
the last few years is enduring tough times now, not every one is in the
same boat. |
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Redpoint struggling to crank out
results - Despite the VC firm's hyped reputation, first fund could be
running into trouble
Redpoint's partners are also still
managing their previous funds at IVP and Brentwood, several of which
were started in 1997 or later. And though these are what made Redpoint's
reputation, some of them are turning out less stellar than originally
thought.
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Insight Capital raises $740M
software fund
Later stage investing can be far less
risky but also far less lucrative than other types of strategies. |
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Elite VC giants still investing,
if it's a home-run promise
Since the crash, 15 top-tier firms have
raised funds of a billion dollars or more. Many -- including Worldview
Technology Partners, Greylock, Austin Ventures and Oak Investment
Partners -- closed their new funds this year, well after most of the
market damage. The amount of funds raised since the crash goes
against the "drought'' thesis. |
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Matrix Partners raises $1B fund |
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Venture capitalists
lure entrepreneurs on board |
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How `Internet Bubble'
looks at the stock market now
Sequoia Capital |
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VCs left holding
worthless IPO shares |
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Venture firm plots safe
course
Morgenthaler Venture Partners |
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Summit Partners crosses
the pond |
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COVER STORY: Venture
Capital - Back to Basics
Firms that engage in stage creep are
asking for trouble. |
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VCs struggle to stay
fit enough to survive
Annex funds are not new. |
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Rates of return down for Hub VC firms
The reliability of internal rate of
return data is questionable. Moreover, it doesn't say how much
cash and stock a venture capital firm has distributed to its investors.
That is the real number that should be watched. |
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What's a VC to do?
Venture capitalists had better keep
investing. |
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Matrix bets on
wireless: In a weak economy, Managing Partner Paul Ferri's winning
streak is on the line |
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Boom Town: The
Next Tech Season Resumes As Sector Returns From Hiatus
Like the last downturn, some of the same
VCs now repeat their same biggest mistakes from a decade ago. |
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After dot-bombing, SBVC rebuilds
Softbank Venture Capital |
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Venture Capital Financing Is
Further Sapped by Events
. . . recent events were reminiscent of
the time around the Gulf War, when the industry had its last downturn.
At that time, the ability to attract capital to invest in start-ups
"fell off dramatically" but, he said, the industry bounced
back within several years to enjoy the "best period in its
history". |
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NVCA Advocates More
Confidentiality on Returns
(Corrected):
. . . acknowledges
that the VC community could benefit from a healthy dose of transparency
and humility. "Sunlight is the best disinfectant," he says.
But he questions the value of making public IRRs and interim valuations,
which by nature are based on subjective evaluations. "There
should be less focus on returns and interim valuations, and more focus
on building world class companies." |
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VC Like Me: Local Firms
May Feel the World Is Against Them, as Investments, and Returns, Dry Up.
But Some Venture Capitalists Say Now's the Perfect Time to Make Money.
The
bigger risk is not that VCs will take on new projects in less lucrative
sectors. It's that they won't abandon the bad investments they might
still be carrying. |
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