• This LP Has Millions to Give to U.S. Firms (Now!)

    Erik1 b_wPeakview Capital is the investment advisory arm of Shengjing Group and the largest global fund of funds in China.

    It also has millions of dollars to invest in U.S.-based venture capital funds, it says. This year. Right now.

    It’s a very different message than VCs are receiving from many other institutions, judging by our recent conversations with them.

    According to a variety of sources, the many brands talking with LPs include Andreessen Horowitz, Menlo Ventures, Eight Partners, True Ventures, and First Round Capital (to name but a handful). But some investors aren’t happy with the founder-friendly approach that many VCs have taken in recent years. As one investor told us earlier this week, speaking on background: “A lot of VCs have ‘returns’ but they’re mostly unrealized; it’s not like they were pumping these [portfolio companies] out [onto the public market] as soon as they could. And now the IPO market has collapsed.”

    Erik Lassila, a longtime VC who is now the U.S.-based managing partner of Peakview, understands his peers’ frustration. There’s a big — and often costly — divide between paper and realized gains. But as part of an organization that plans to invest $1 billion in venture funds —  including “hundreds of millions of dollars” in the U.S., a smaller percentage in Israel, and the rest back home in China — Lassila doesn’t have to worry about VCs’ mistakes in recent years. He’s working with a “blank slate,” as he puts it.

    More here.

  • “Tough Sledding” for New Funds in 2016, Says LP

    tough sleddingMost institutional investors are notoriously circumspect. Chris Douvos is not like most institutional investors. In fact, Douvos, a managing director with Venture Investment Associates — a fund of funds group that commits capital to venture capital, growth capital, and private equity groups — is very opinionated comparatively.

    It’s a refreshing quality, particularly when looking for insights into how the people who fund venture firms are feeling about the industry right now. And according to Douvos, they’re nervous, including because their venture customers are coming back to them a lot sooner for capital than they once did.

    He explained during a chat on Friday, which we’ve lightly edited for length.

    There’s a lot of nervousness out there suddenly. Are you feeling it at VIA, or does it seem to you like this will pass?

    A lot of people are worried right now that we’re in a game of musical chairs, and no one wants to be standing when the music stops. People think that 80 to 90 percent of the billion dollar companies will end up getting liquid for less than a billion dollars, and I think there’s truth to that. We’ve been in a market where capital has been relatively cheap, and we’re looking ahead to a market where capital will get more expensive potentially.

    So VCs should be selling before things fall further? We wrote about secondary firms last week, and they say they’re getting a lot of calls.

    CD: LPS are definitely yelling at VCs to put some ‘moolah in the coolah.’ They’re hammering their GPs to turn some of that [paper] value into actual cash because of what I call the exit sphincter. When the capital isn’t coming back [to institutional investors], it interrupts the flow of things. We give out money expecting it will come back with profits in a reasonable amount of time. When it doesn’t, we can’t put more money into the asset class because a.) we’re at the top of our allocation [to venture capital and b.) we’re out of money.

    We have a down-trending public market at the same time that [our] private investments are really inflated [and not exiting], so LPs are getting doubly crushed.

    But you saw some money back. For example, one of your funds is True Ventures, which made an apparent fortune on its early check to Fitbit.

    We have seen money from Fitbit and there’s more on the way. We’re in some great funds. But now, all the funds we love are coming back in 2016.

    More here.

  • Unicorns Reach a Tipping Point

    unicornThis morning, the law firm Fenwick & West published new findings about all the U.S.-based unicorn financings that took place during the last nine months of 2015. It’s rife with interesting nuggets, but perhaps most fascinating is that in the fourth quarter of last year, half of the 12 rounds it tracked featured valuations in the $1 billion to 1.1 billion range — and terms that were far more onerous than earlier in the year.

    Fenwick & West politely suggests these companies may have been “willing to be more flexible” regarding “investor friendly terms” in order to attain their billion-dollar-plus valuations. We’d call the behavior bone-headed.

    The instinct is understandable, to a degree. For the last couple of years, the media has been almost singularly obsessed with companies valued at north of a billion dollars. Some management teams invariably concluded that to attract the attention of reporters and even potential recruits, they needed so-called unicorn status.

    Slack is among them. CEO Stewart Butterfield told Fortune in January of last year that if he couldn’t get a billion-dollar valuation straightaway for his company, he wouldn’t raise capital at all, saying the valuation was a “psychological threshold” for “certain types of customers” who want the “comfort of knowing we’re highly valued and financially secure.” Butterfield said the valuation helped with hires, too. “There is a class of employees who are more risk-averse and work at some company like Google or Facebook and they have a mortgage and kids,” he told Fortune. “It helps a lot of those kinds of people as well.”

    Well, it does until it doesn’t.

    More here.

  • For DFJ, a Quick Close on Fund XII

    VentureTeamDFJ_hr (1)DFJ, the 31-year-old, Sand Hill Road venture firm, is announcing a new, $350 million fund this morning — the firm’s 12th early-stage vehicle.

    We chatted with managing director Josh Stein yesterday about the effort, which he says took about two months from start to finish.

    The biggest takeaway: Expect more of the same from the firm, which typically plugs between $10 million and $15 million into its startups; has six investment partners, including firm cofounder Steve Jurvetson; and has become known, largely owing to Jurvetson’s bets, as an outfit willing to gamble on companies that are little out there — sometimes literally.

    Among the firm’s many Jurvetson-led investments: the rocket company SpaceX, the satellite company Planet Labs, and the electric car company Tesla Motors. Indeed, Jurvetson accepted a Crunchie award on behalf of SpaceX at last night’s Crunchies awards ceremony. The company won for the category of best technology achievement for its two-stage rocket, the Falcon 9, which was designed to transport satellites and SpaceX’s own Dragon spacecraft into orbit.

    Stein wouldn’t talk yesterday about the internal rate of return of any of the firm’s previous funds. He did say DFJ’s last fund — a $325 million vehicle closed exactly two years ago — has backed an as-yet-undisclosed autonomous transportation startup that “we think could be the biggest company we’ve ever been involved with.”

    More here.

  • Scale Venture Partners Raises New, $335 Million Fund

    _header-contact-B-v1This morning, the Bay Area venture firm Scale Venture Partners is announcing the close of its newest fund,  Scale Venture Partners V, L.P., with $335 million, up from the $300 million fund it closed in May 2013.

    Scale, once the venture arm of Bank of America (it split off from the bank 10 years ago), says its capital came from a wide array of pension funds, foundations, funds of funds, financial investors and family offices worldwide, including previous and new investors. (BofA is no longer an LP.)

    The firm, which focuses primarily on enterprise investments, is run by longtime colleagues Stacey Bishop, Kate Mitchell, Rory O’Driscoll, and Andy Vitus, along with their newest partner, Ariel Tseitlin, a former director of cloud solutions at Netflix who was promoted from venture partner in 2014. It also recently announced the promotion of former tech banker Susan Liu to vice president from senior associate.

    Like a lot of other firms able to raise funds right now, Scale has had a string of exits in recent years, including the IPOs of the online storage provider Box. We talked via email with several partners of the firm earlier this week to get a better handle on where it might be shopping next (among other things).

    More here.

  • A New Way to Fund Unicorns Starts to Look Less Magical

    unicornIf you haven’t heard of a fairly new twist on investing called special purpose vehicles (SPVs), you probably aren’t an institutional investor or a wealthy individual with direct ties to either a venture firm or a high-flying startup like Pinterest or Postmates.

    But don’t worry if you’ve missed the opportunity to invest in one. Investors may find they weren’t worth the risk if valuations of so-called unicorns — some given “haircuts” recently by their mutual fund investors — start to slip more broadly.

    The vehicles – essentially pop-up venture firms that come together quickly to make an investment in a single company – began surfacing around 2011, leading up to Facebook’s IPO, and they’ve been on the rise since. In April, the Wall Street Journal reported on several low-flying SPVs that have been used to connect investors with high-profile, still-private companies like the data analytics company Palantir Technologies and the grocery -delivery outfit Instacart.

    Another company that has raised money via numerous SPVs is the digital scrapbooking company Pinterest. When it set out to raise more than $500 million earlier this year, the venture firm FirstMark Capital raised a $200 million for a SPV to help fund it. In 2014, Pinterest separately raised $131.1 million through two SPVs organized as Palma Investments by SV Angel, the seed-stage fund founded by renowned investor Ron Conway.

    It’s no wonder that investors are drawn to the vehicles. In the case of Facebook, early access to the company produced big dividends for investors. Investor Chris Sacca similarly amassed an outsize stake in Twitter for investors Rizvi Traverse and J.P. Morgan by creating SPVs that paid off. (How richly depends on when they began cashing out. As of late September, Rizvi Traverse had sold more than 10 percent of the 15.6 percent of Twitter it owned at the time of its November 2013 IPO. Twitter’s shares peaked in January of 2014 at $69 per share; they’re now trading at roughly $26 apiece.)

    Whether investors in newer SPVs will see such rewards remains a question mark – and there a lot of investors in newer SPVs.

    More here.

  • Andreessen Horowitz Lands a New GP — and a New Fund

    Vijay_Pande2Andreessen Horowitz is making a big move into biotech, and it’s using a $200 million new fund called the AH Bio Fund – and new general partner, Vijay Pande — to plant its stake in the ground.

    The fund will be used to invest in mostly early-stage startups at the intersection of computer science and life sciences. It’s the first sector-focused fund for Andreessen Horowitz, which is halfway through its main fund, a $1.5 billion vehicle that it announced in March of last year.

    Pande seems a good choice to lead it. He has the know-how and the connections, having spent the last 16 years teaching chemistry, structural biology and computer science at Stanford University, where he says he’ll continue “spending a very small percentage of my time” with his research group there.

    Pande also knows startups, having been involved in a number of them already. Last year, he cofounded Globavir, a seed-funded infectious disease company. Pande also founded Folding@home, a now 16-year-old distributed computing project for disease research that remains his highest-profile work to date.

    Asked if it will be hard to say no to some of the many Stanford-related startups now working on health care-focused, machine-learning startups, Pande calls it a “kid in a candy store” issue, adding that he expects to “see a lot [of startups] from Stanford, Berkeley, and M.I.T.,” among other places. (Conveniently, he notes, he has spent time at all three. He was once a Miller Fellow at U.C. Berkeley and nabbed his PhD in physics from M.I.T.)

    Andreessen Horowitz is quick to note that Pande won’t be making decisions about what to fund on his own.

    More here.

  • Brooklyn Bridge Ventures Nears a Close on Fund Two

    1977656_74228156_3499416-jpgBrooklyn Bridge Ventures, a three-year-old, seed-stage venture firm led by its founder and sole general partner, Charlie O’Donnell, is about to close its second fund with $15 million, up from an $8.3 million debut fund closed last year.

    It’s a meaningful milestone for O’Donnell, who got his start in venture capital as an analyst at Union Square Ventures and later worked as a principal with First Round Capital before striking out on his own in late 2011.

    Last week, we sat down with him in San Francisco to talk about what the fundraising process has been like. We also chatted about his current portfolio, whether Silicon Valley VCs are paying as much attention to New York as they have in recent years, and why he’ll (probably) never be more than a one-man show.

    You’re just finishing up your first fund. How many companies did you wind up backing and what was your average check size?

    We funded 33 deals and the average check size was between $200,000 and $250,000.

    Given its size, were you able to make any follow-on investments?

    I don’t care about that stuff. I’m getting in so early [that] my average pre-money valuation is $4 million. If you sell a company for $250 million and you got in at $4 million and your fund is only $8 million, the multiple is so high and the base is so low that you return your fund on just two or three of those deals.

    At $8 million, you basically need to create a billion dollars in total enterprise value across 33 companies. It’s hard work, but you don’t have to suspend reality to imagine that a few portfolio companies might exit [in acquisitions totaling around] $250 million. You get four or five [additional] $50 million [exits], and a couple of singles and doubles where you get your money back, and it’s a 3x fund, even if the other 17 investments go to zero.

    More here.

  • AngelPad Shows Off 13 New Companies

    IMG_1640AngelPad, a five-year-old incubator that twice a year chooses roughly a dozen startups to coach over a three-month period, held its ninth “demo day” yesterday in San Francisco. As has become routine, its founders presented to a densely packed audience of invite-only guests.

    We weren’t surprised, walking onto the crowded scene. At this point, Angelpad, founded by husband-and-wife team Thomas Korte and Carine Magescas, has earned a solid reputation for finding interesting new entrepreneurs. (MoPub and Crittercism are two of its better-known discoveries.)

    The outfit — which provides each company with a $55,000 convertible note and an addition $4,000 per founder in exchange for 7 percent of their startup — also seems to be attracting more sophisticated entrepreneurs. That, or else Korte and Magescas are getting better at identifying talent. As Magescas told us, while companies are “usually just getting off the ground here,” Angelpad’s current batch of 13 companies “has an enormous amount of traction already,” to the tune of $2.5 million in combined revenue. “That’s not intentional,” she says. “Some are just [taking off] earlier than we thought.”

    Continue reading for an overview of the presenting companies.

  • Trinity Ventures Raises $400 Million for 12th Fund

    image005Trinity Ventures, a 29-year-old, Sand Hill Road Firm whose recent hits include the IPOs of Zulily, New Relic and TubeMogul — not to mention the still-private but highly valued startup Docker — has closed its 12th fund with $400 million in capital.

    We were in touch yesterday with Ajay Chopra, a general partner at the firm for nearly the last decade, to ask what the fundraising process was like at a time when valuations are high — as are concerns about exits. Our exchange has been edited lightly for length.

    You raised your last fund in 2012 with $325 million. This fund is considerably larger. 

    We’re writing slightly larger checks for the same ownership. With valuations higher, it takes a larger check to get the same ownership in a similarly sized portfolio. But our mission and strategy for achieving it have stayed the same: invest early in world-class teams going after big ideas, support them through good times and bad, and build meaningful businesses together.

    How has the firm’s team changed since that last fund was closed?

    Since then, we’ve added six people to our staff. Four of the new additions are women, and two of those women are partners. We’re very glad that with these additions, we’re probably the most diverse firm of our size.

    The [general partners are] the same except for Noel Fenton, who founded the firm almost 30 years ago and is taking a well-deserved step back.

    What was fundraising like? What did your investors want most to see? Did you sense nervousness on their part over exits, or a general lack of them?

    Besides good performance, they want to see funds where partners have worked well together over several investment cycles with consistent investment style over several funds. They’re definitely concerned about current startup valuations but also understand that from a return standpoint, it’s primarily an issue for late-stage investors.

    How are you dealing with the slowdown in IPOs?

    More here.

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