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NEA's Peter Barris on the importance of low feesNew Enterprise Associates charges unusually low fees by venture industry standards but takes a higher-than-typical share of carried interest from returns on successful investments, Managing Director Peter Barris told attendees at Thomson Reuters’ PartnerConnect East 2013 conference in Boston in April 2013. While emerging venture managers often make concessions on fees and carried interest, established players have a history of writing their own rules. Some charge fees above the industry-standard 2 percent. Others seek a share of carried interest greater than the industry norm of 20 percent. A few do both. For New Enterprise Associates, known for raising some of the largest funds in the venture industry, it’s all about carry. For some time, the firm has made a practice of charging unusually low fees by venture industry standards and taking a higher-than-typical share of carried interest from returns on successful investments, Barris said. Barris says the practice is meant to align interests of general and limited partners in the fund, with the message to LPs being that GPs won’t make big returns unless they do, too. Additionally, Barris says, NEA makes an effort, where feasible, to pay back fees, which it essentially sees as a loan. That said, Barris did not recommend dipping below the 2% management fee or upping general partners’ share of carry as advisable for the venture industry at large. For smaller funds in particular, he said, the fee is necessary to cover the operational costs of running the firm. “When you’re an early stage firm, there’s a direct correlation between fees and the cost of operating the fund,” he says. Once you’ve been around longer, however, there’s more of a disconnect. Overall, Barris says NEA’s long-term strategy has been to take an institutionalized approach to venture investing. While many firms build their reputation around high-profile partners and their compensation strategy around rewarding top performers, NEA pays its general partners the same amount. The idea, Barris says, is to create a culture in which “if I’m a GP, I care about someone else’s deal as much as I care about my own.” The other notion behind the strategy is to establish NEA as a firm that can outlast the comings and goings of individual partners and operate on a large scale. The thinking there, Barris says, is that NEA’s partners have long believed the venture business is likely to go the way of other industries like banking, in which there are very large, full-service establishments and smaller boutique firms. Venture fundraising data from the last couple of years seems to support that idea, with a concentration of capital in the hands of a few large, established firms. Another way the firm tries to institutionalize its operations, says Barris, is through its advisory board, which is made up of many of its largest LPs, as well as some independent advisors. The board functions much like one at a venture-backed company, he says. Every fall, for instance, the firm presents its budget to the board, outlining plans for spending on salaries, travel and other expenses. While Barris didn’t point to any recent major changes in fund terms or firm processes, he did indicate a shift could be in the works if carried interest becomes taxed as income, as the federal government has long been considering. The current tax treatment of carried interest as capital gains, he said, definitely affects how fund terms are structured. By Joanna Glasner Note: This story first appeared on peHUB on April 8, 2013 https://admin.pehub.com/2013/04/fee-softly-carry-big-carry/
Cydan Launches with $16M in BackingCydan, an orphan drug accelerator that aims to identify and “de-risk” programs with therapeutic and commercial potential, said that it has launched with $16 million in venture backing. New Enterprise Associates and Pfizer Venture Investments led the financing, with participation from Alexandria Real Estate Equities Inc. Cydan is based in Cambridge, Mass.
- WellTok Raises $18.7M From Emergence, InterWest, NEA
WellTok, Inc. said it closed an $18.7 million Series B funding with Emergence Capital Partners and InterWest Partners co-leading the round and New Enterprise Associates joining the funding. The company also appointed Executive Chairman Jeff Margolis to chief executive officer. Margolis founded TriZetto.
- Cleave Biosciences Adds $10M
Cleave Biosciences has added $10 million in Series A financing from new investor New Enterprise Associates, bringing its Series A total to $54 million. In the fall of 2011, Cleave raised $44 million from US Venture Partners, 5AM Ventures, Clarus Ventures, OrbiMed Advisors, Astellas Venture Management and Osage University Partners. The company is focused on cancer drug discovery and development.
Fee Softly and Carry a Big CarryWhile emerging VCs often make concessions on fees and carried interest, established players can write their own rules. For New Enterprise Associates, that translates into fees below the standard 2% but a bigger share of carry, managing director Peter Barris told attendees at the PartnerConnect conference in Boston.
Desire2Learn Completes Second Acquisition - ReportDesire2Learn Inc., a Kitchener, Ontario-based company that makes educational software applications, has made its second acquisition this year. After buying Degree Compass in January, TechCrunch http://techcrunch.com/2013/03/08/flush-with-80m-desire2learn-buys-anti-sharepoint-for-students-platform-wiggio-its-2nd-acquisition-in-2-months/ reports the company recently picked up Boston, Massachusetts-based Wiggio Inc. for an undisclosed amount. Desire2Learn was backed with C$80 million in funding by OMERS Ventures and New Enterprise Associates in September 2012, the largest Canadian software deal in over a decade.
- NEA Leads $37M Round in MuleSoft
MuleSoft, which provides enterprises with a cloud-based platform to integrate its mobile and on-premise data and applications, has raised $37 million in new funding. New Enterprise Associates lead the round, with participation from Salesforce.com, as well as returning investors Hummer Winblad Venture Partners, Morgenthaler Ventures, Lightspeed Venture Partners, SAP Ventures and Bay Partners. The company has now raised about $81 million in capital since 2006.
Intel Capital Ranks as Most Active VC in FebruaryThe corporate venture arm backed eight deals in the month; Benchmark ranked second with seven deals
Kleiner-Backed Fisker Mulls Bankruptcy as Investor Search PersistsHybrid automaker Fisker Automotive has hired law firm Kirkland & Ellis to advise it on a possible bankruptcy filing, a source said on Thursday, while executives continue their search for a strategic investor. The company, founded in 2007, has raised more than $1 billion in venture capital, including $103.67 million last September 2012 from Advanced Equities Inc., Kleiner Perkins Caufield & Byers and New Enterprise Associates.
- Pluribus Networks Sees Backing from China Broadband Capital
Pluribus Networks has raised $44 million in Series C financing from investors including China Broadband Capital, Menlo Ventures, New Enterprise Associates, and Mohr Davidow Ventures. The Palo Alto, Calif.-based company developers hardware-accelerated network virtualization technology for cloud datacenters.