Private Equity
Or so a couple of investors predict, a prospect that no doubt thrills Limited Partners. Former venture capitalist Chris Dixon (he worked at Bessemer) argues that VCs raise bigger and bigger funds and push more and more money at startups -- for the same valuation, even when those startups don't need it -- so they can keep justifying their management fees, which Dixon points out can add up fast when you take 2 percent of a $500 million fund every year for 10 years. Dixon's latest project is Hunch, a startup he co-founded that teaches machines how to help people make decisions. It appears not to have taken venture capital. He calls for VCs to adopt performance-based compensation -- not just for their startups, but for themselves.
2 min read · 31 August 2009
Sequoia got 2.1 million shares in the Beijing-based dairy this week in exchange for $47 million in cash and a $16 million bridge loan. Hedge funds used to be the ones doing deals like this, said American Dairy's attorney, Matt Adler of DLA Piper, but they're harder for hedge funds to afford now, so private equity and venture investors are stepping in. Hence VIPE -- Venture Investment in Private Equity -- a term that Adler expects to hear more as venture investors with big funds like Sequoia's keep looking for new ways to invest capital since so many of their startups can't go public.
1 min read · 28 August 2009
Imagine H2O was founded 18 months ago by Tamin Pechet of Catamount Ventures, after he tried to invest in water startups himself and realized how hard it was. Less than one percent of venture capital goes to water, he says. "It was incredibly difficult to find opportunities and understand the market and make connections," Pechet adds. "When I asked a team to help me, we could not come up with good resources for entrepreneurs or early stage investors." Hence Imagine H2O, a non-profit that's holding a business plan competition for water startups beginning September 1. Also part of the package is an incubator program and $70,000 in prizes and services for the winners, including $20,000 in accounting from PricewaterhouseCoopers and $20,000 in legal services from Cooley Godward.
1 min read · 28 August 2009
Three days after the Benchmark sage said the venture industry is shrinking back to its mid-1990s size -- and Dan disagreed with him -- VCs are still weighing in. Here's another one -- Fred Wilson of Union Square Ventures, who agrees with Gurley and adds his own two cents. He likes Gurley's assertion that a few investors pumped up their allocations to venture funds, got supercharged returns and were copied by others, whose returns plummeted when the stock market crashed. He also agrees that dollars flowing into venture capital will decrease over the next decade by about 50 percent.
1 min read · 28 August 2009
Professor Arjen Hoekstra made a big splash this month at World Water Week in Stockholm, where he talked about the enormous amounts of water that go into producing simple, everyday items: 140 liters for a cup of coffee, 2,700 liters for a cotton shirt,16,000 liters for a kilogram of beef. Even though the U.S. uses more water than any other country, according to Hoekstra, venture capital investments in water startups have lagged other clean tech investments because they're complicated and often involve dealing with government agencies. Also, the idea of a water footprint is fairly new -- carbon footprints are farther along and better understood. But if Hoekstra's push for water footprints catches on...
1 min read · 28 August 2009
Rob Jevon, a partner at Boston Millennia Partners, today posted a list of 10 Mistakes that entrepreneurs make when asking him for money. Jevon funds pharma and healthcare companies, but his advice could apply to anybody: Know what technologies your VC has funded before (and therefore what he understands), know what you're pitching, have a clear plan for how you're going to use the money (not on fancy office space), be concise, think big enough so the VC sees a potential home run (since 15% of his investments are strike-outs), don't play VCs off against each other (they talk), and more.
1 min read · 27 August 2009
More venture capitalists are going to seed as a way to test out startups, according to Wilson Sonsini partner Caine Moss -- giving a small amount of money and then stepping back to see "if these guys can turn the idea into something." If the entrepreneur shows enough progress, the VC will do a more conventional Series A round and get more actively involved. Sometimes this works out well (for the entrepreneur). For example, take WaterCooler, a startup that builds online communities of sports fans and TV shows. It raised $4 million in a Series A funding this way from Canaan Partners. (disclosure: the investor here is Moss's wife). But it can backfire if the startup doesn't show progress and the VC decides to drop the company. One big problem, according to Moss and several others, is that seed investments are not low-risk. They require investors to roll up their sleeves and get heavily involved in companies, and not all VCs are used to doing this -- nor do they have time because they're busy tending their other companies.
2 min read · 27 August 2009
The Web site for people who've worked up the courage to try to fix, or at least maintain, their own cars launched today after being in beta for several months. Founder Trevor Traina says it's an idea whose time has come because many people can't afford to buy new cars anymore, but there's another, underlying benefit as well. Driverside.com is the first company to combine information usually held by insurance companies, car manufacturers, finance companies, quick lube shops and other parts of the car universe into a giant database, creating a single view of a car owner, said Bob Ackerman of Allegis Capital, which invested $5.3 million in Driverside.com in a Series B round in May. "The more you know about individuals and their autos, the more you can make suggestions that are relevant, enhancing the value of your service," he said.
2 min read · 25 August 2009
Limited partners in VC funds have grown more restless and demanding over the last year, as the economy has weakened and funds raised during the dotcom bubble have wound down. They're asking for stronger guarantees on returns, lower management fees and other concessions even from top-tier venture capital firms -- something they haven't done before, says T. Hale Boggs, a partner in the venture capital practice of law firm Manatt Phelps & Phillips. But Boggs' clients are also seeing more positive ways to get money back to LPs, he says, thus "making lemonade out of lemons."
2 min read · 25 August 2009
More layoffs are coming to the San Francisco Chronicle, the union told employees last night -- details to follow. That means people who have endured four months of staff departures and goodbye parties from the current round of layoffs -- which finish this month -- will once again be coming to work every day not knowing whether they have a job. Private equity firms like Platinum that are investing in struggling newspapers should think hard about how to handle the human side of these businesses, which is as big a barrier to newspapers' economic health as the falling subscriptions and may in fact play a big part in causing readers to turn away.
2 min read · 25 August 2009
