• NEA’s Ravi Viswanathan on the Firm’s Concerns, Its Processes, and Its Next Big Fund

    RaviNew Enterprise Associates may be big, but it isn’t unwieldy. Not according to the picture painted by Ravi Viswanathan, who joined NEA nine years ago from Goldman Sachs to co-head the firm’s growth equity effort. I sat down with Viswanathan last week at the expansive Sand Hill Road offices of the 35-year-old firm, which has raised $13.3 billion over its history, including $2.6 million it raised for its 14th fund last year. (It’s one of the largest funds in venture capital history.)

    We chatted about where the firm has seen some of its biggest hits in recent years (think WorkdayTableau SoftwareCvent); why it hasn’t made a single late-stage investment in 2013; and how the organization — which employs more than 100 people, including 12 general partners — decides on a deal. Our conversation has been edited for length.

    NEA does deals of all sizes out of a single global fund. What’s its investing range?

    We’ll do a $200,000 seed deal, [involving] two guys out of a Stanford class, all the way to a $50 million to $75 million check. We’ve written $100 million checks a couple of times – probably about 10 years ago, including for a semiconductor investment. But if I look at the last 10 growth deals, I’d say our sweet spot is in the neighborhood of $25 million to $50 million.

    You have offices in Silicon Valley, Washington, D.C., China and India. How much of your fund are you investing abroad?

    We invest up to 25 percent [abroad], though in the last five years, the number is less than 20 percent, because there’s been so much going on in the U.S. and, at the same time, there have been political and economic headwinds in China and India.

    How much consensus do you need to make an investment? Can you ever act autonomously?

    No, ultimately everything goes to the full partnership. Some of the smaller deals may occasionally get delegated [to a smaller group] but for growth deals, because it’s bigger checks, they always go up [to the general partnership for approval].

    How many votes do you need to get a deal done?

    You need a quorum; you need seven or eight partners to vote on it. But usually, if there’s more than one or two no’s, the deal almost never gets done. We don’t have a hard and fast blackball rule, but if there are serious reservations, we just [back off].

    As a firm, we have off-sites four times a year to spend time together, so the East Coast and West Coast knows each other really well; we’re very integrated. So if a partner calls me and says, “Here are three things that really bother me about the deal you presented,” it helps you arrive at the right decision. Of course, sometimes you have to say, “This is a great investment; we should go for it.” And we’re trusting enough of each other that if someone has that much conviction, [the others can be convinced to go along].

    You’ve made 24 growth investments in recent years, but none this year because of soaring valuations. Do valuations look more reasonable at the earlier financing stages? Do you have your pick of B stage companies to fund?

    Series B deals concern us. The quality deals — those that have the great syndicate, the great team — you have to pay up for them. On the flip side , people have paid up and been validated, because the Series C round has been that much higher. But broadly speaking, I think valuations are pretty rich here and in New York. In Chicago, meanwhile, we’re seeing full valuations, but they aren’t astronomical.

    Among the biggest venture capital firms, more seem to be adopting an agency type model. Would we see NEA embrace the same?

    We have a quasi-agency model. When we invest, rarely if ever do you get one person; you get two, three, or four people: A GP, an associate, a principal. And those folks spend a lot of time with the company. Do we have an army of biz dev people and marketing people and recruiters? No. We’ve thought about it; we know some firms are having great success with it. But we haven’t made any decisions. What’s important to us is making sure that we’re convincing [founders] with data that we’re adding value above and beyond our peers.

    You raised $2.6 billion last year. When will you be back in the market, and might NEA raise an ever bigger fund the next time around?

    We’ll be back in the market in 2015, plus or minus a couple of quarters. As for size, we go in with a pretty open mind, but [$2.5 billion] is the default. The question we have is: what’s the right thing for the companies and the LPs? We’ve spent a lot of years figuring out this model. But every fund is a new discussion.

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  • Venture Heavyweights Sit Back as Deal Sizes Soar

    Hanging Boxing GlovesIt’s been a banner week for a number of Internet companies.

    Last Wednesday, social network Pinterest acknowledged closing on a $225 million round that valued the company at $3.8 billion. Shortly thereafter, AllThingsD reported that Snapchat, the messaging app, is now weighing a $200 million investment round that would value the company at $3.5 billion. And just yesterday, NextDoor, a social network for neighbors, raised $60 million in fresh capital.

    But the reality is that some of today’s biggest venture heavyweights have pulled back dramatically on late-stage deals.

    Two weeks ago, during a visit to Andreessen Horowitz, Marc Andreessen told me his firm has “done almost no growth investments in the last year and a half.”

    Yesterday, Ravi Viswanathan, who co-heads New Enterprise Associates’ Technology Venture Growth Equity effort, told me much the same. “If you chart our growth equity investing over the last few years, it’s been very lumpy,” said Viswanathan. “Last year, I think we did four or five growth deals. This year, I don’t think we did any.”

    That’s saying something for a firm that is right now investing a $2.6 billion fund that it raised just a year ago.

    Andreessen attributes his firm’s reluctance to chase big deals to an influx of “hot money.” The partnership is “way behind on growth [as an allocation of our third fund],” Andreessen told me, “and that’s after being way ahead on growth in 2010 and 2011, because so many investors have come in crossed over into late stage and a lot of hedge funds have crossed over, which is traditionally a sign of hot times, hot money.” He added, “What we’re trying to do is be patient. We have plenty of firepower. We’re just going to let the hot money do the high valuation things while it’s in the market. We’ll effectively sell into that.”

    That’s not to say later-stage deals don’t have their champions right now. At this week’s TechCrunch Disrupt conference, venture capitalist Bill Gurley of Benchmark told the outlet that “a global reality is that some of these companies have systems, they have networks in them, that cause early leads to always play out with really huge platforms.” People “laugh or write silly articles about the notion of a pre-revenue company having a very high valuation,” added Gurley.  But “if you talk to some of the smartest investors on Wall Street, or go talk to guys like Lee Fixel or Scott Shleifer at Tiger, they’re looking for these types of things. They’re looking for things that can become really, really big.”

    Still, Viswanathan’s concerns sound very similar to Andreessen’s when I ask him why NEA has pulled back so markedly from later stage investments.

    “It’s an amazing tech IPO market, and that drives growth,” Viswanathan observed. “But I’d say the growth deals we saw last year [were] elite companies getting high valuations. There are still great opportunities out there. But right now, it feels like there are high valuations even for the lesser-quality companies.”

    Photo courtesy of Corbis.

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