Can't figure out if this is bearish or bullish; these are some smart cookies, the first investors in ARBA and BRCD:
Firm abandons $1 billion VC fund
Unstable times:
Troubled by poor IPO market, Crosspoint drops
$1 billion VC fund
BY SHAWN NEIDORF
Mercury News
At a time when veteran venture firms routinely raise billion-dollar funds, Crosspoint Venture Partners has done something stunning: The 30-year-old Woodside firm has walked away from $1 billion.
The money already had been committed, though none handed over, by institutional investors, and the fund was slated for an official close Dec. 1. But last week Crosspoint called its investors and told them that plans for a new fund were suspended indefinitely in light of current market conditions, Managing Partner Seth Neiman said Tuesday.
The abandonment of a fund less than two weeks before its formal close is unprecedented, and all the more dramatic because it involves so large a fund raised by so reputable a firm. However, the larger significance of the firm's unusual move is unclear -- Crosspoint could be a canary in the venture coal mine, a harbinger of retrenchment to come. Or it could be just be a very cautious firm going to extreme lengths to play it safe.
``Unless we can look them in the eye and say we believe we have a great model to make all of this money, in good conscience, we can't go forward,'' said founding partner John Mumford.
Crosspoint, which invests in e-business services and software and broadband infrastructure, was troubled by the poor IPO market. The firm also was concerned that while private companies' valuations have fallen, they have not dropped enough to accurately reflect dropping values in the public market, Neiman said.
And Mumford worries that in unstable times, top executives will be less willing to leave secure corporate jobs to take a chance on joining a start-up, making it difficult to fill key management positions at venture-backed companies.
Although he understands the firm's reasoning, Josh Lerner, a professor of business administration at Harvard Business School who studies the venture industry, was surprised by Crosspoint's decision, and he could not recall a single similar situation. Nor could Jean Yaremchuk, chief operating officer at San Francisco venture data firm VentureOne Corp., or Jesse Reyes, vice president of Newark, N.J.-based venture data firm Venture Economics.
And figures released by Reyes' firm Tuesday show U.S. VCs raised $70.1 billion in the first three quarters of this year, almost $11 billion more than in all of 1999.
Since April, when the stock market began to falter, 17 venture funds of $1 billion or more closed, according to Venture Economics. And of the $28 billion raised by 108 U.S. funds in July, August and September, $12.3 billion funneled into a mere eight funds, all of which totaled $1 billion or more. In short, a growing chunk of money raised for venture investing is concentrating in fewer VCs' hands.
Crosspoint easily could have joined the billion-dollar-fund club in December. But Reyes thinks the firm's unorthodox decision might have been a wise one. Crosspoint's action shows that just because a firm can raise $1 billion doesn't mean it should, and that VCs and their judgment aren't infallible, he added.
``I frankly think it's smart,'' he said, adding Crosspoint could be ``the first guys to say the emperor wears no clothes.''
Philip Halpern, vice president and chief investment officer for the University of Chicago, was one of the Crosspoint investors who got the phone call last week.
He was a bit surprised by news about the fund, but ultimately pleased with Crosspoint's decision.
``I find that their realism and their assessment was very thorough and thoughtful and sensitive, and they didn't want to do anything that would jeopardize their reputation,'' he said.
Yaremchuk and others think Crosspoint will have no problem returning to investors in the future to raise a new fund, given the group's past performance. ``They're a top-tier firm,'' she said.
Without a new fund, Crosspoint has enough money to invest in one or two more companies. Then it will turn its attention to supporting the 60-odd companies from its last fund, Neiman said.
``I'm fully employed for five or six years, even if we never raised a new fund,'' he added.
Neiman doesn't know when a new fund would be raised, but the firm could wait a year or more, he said.
Meanwhile, other firms with mega-funds are continuing to invest in young companies, their VCs a bit surprised and miffed by Crosspoint's decision.
``I would say it's a great time to raise money because not very many people can,'' said Scott Sandell, a Menlo Park-based general partner at New Enterprise Associates. ``In the next six to nine months, the dynamics in the private equity markets are going to change dramatically, and those who have money will have lots of opportunities to invest it,'' he predicted.
``It's not that we aren't investing, because we are, but we've raised the bar, and we're being incredibly careful about how we invest the money at this point,'' he added.
Menlo Ventures of Menlo Park closed a $1.5 billion fund in July, but managing director John Jarve said the group still is investing from a prior fund and is not likely to make a first investment out of the new pool until the first quarter of next year.
He too was surprised that Crosspoint turned away money it already had raised. ``If the money's out there, and you can close it, you want to get it while you can. . . . If Crosspoint had the money available, I'm really quite surprised that they're not taking advantage of it.'' |
