I took my losses. I sold my 1200 shares yesterday. Leaving this thread. Good luck to all.
Here's more bad news...
Flushing of VC firms---
Crosspoint Suspends $1 Billion Fund
Citing unfavorable market conditions and start-up valuations that remain too high, Crosspoint Venture Partners took the unprecedented step this week of suspending a new $1 billion fund that was set to close today.
Founding partner John Mumford said the early-stage fund was oversubscribed, but after the firm considered current market conditions, "We decided it was not a good time to be making new investments and raising a new fund." So Crosspoint told its limited partners to hold onto their money.
It was a stunning move for one of the top venture firms, which incubated Ariba (Nasdaq:ARBA) and Brocade Communications (Nasdaq:BRCD), turning a combined $7 million investment in both firms into more than $4 billion.
But with the IPO market drying up, VCs will have a tougher time moving their portfolio companies on to the next liquidity event, and companies will find it tougher to raise money. Add to that the fact that start-up valuations remain high, and Crosspoint didn't think it could continue to deliver the level of returns its limited partners had come to expect, Mumford said.
Mumford said Crosspoint's partners have taken the news well, due to the credibility the firm has built up over the years. Crosspoint's 1993 fund turned $64 million into $3.6 billion. The 1996 fund turned $100 million into almost $4 billion. The 1997 fund returned more than 2,000 percent, and the 1999 fund has already returned some liquidity to its limited partners. "That's why they respect our view," he said.
Early-stage valuations have declined, but remain about five times higher than they were in the mid-1990s, Mumford said. They've gone from $30-$40 million down to about $20 million, he said, but they need to get back down to $5 million-$10 million. "That's the valuations we need to be investing in," he said.
"When you manage a billion-dollar fund, you need to have some companies that are rocket ships," he said, returning a minimum of 1,000 percent. If companies go public at a valuation of $100 million, that makes valuations of less than $10 million essential for maintaining returns, he said.
Mumford said the firm will focus on the 66 companies currently in its portfolio, and also has some money left in its most recent fund for new investments. And ideas continue to flow from Crosspoint. It recently invested in 14 firms that it said create a new Vertical Service Provider industry delivering Internet-based services targeted at key vertical markets. He said the firm remains "extremely bullish" on the Internet infrastructure space, but will spend time examining the right model for the current market environment.
"We have always prided ourselves on our vision," he said. "Right now, we don't have a clear vision."
Mumford said he expects the market shakeout to continue for some time, saying that "The hangover may last as long as the party." The firm appears to be waiting for that shakeout to hit VCs.
"There's a tremendous amount of money in the venture business right now, and we need to see a lot of it flush through," he said. "There's been a huge influx of new firms." Newer firms and firms that placed large bets on e-commerce "will have a very big challenge to raise money in the future." He said two brand-name firms had been particularly hard-hit by the market shakeout, one of which recently sent a letter to limited partners saying it would not be able to return money.
Given Crosspoint's expectation that VCs are headed for a shakeout, the decision to suspend the fund is not surprising. If venture money will soon dry up, Crosspoint will likely be able to get into deals at much lower valuations when it eventually closes its next fund.
internetvcwatch.com |
