SCHWARZENEGGER SEEKS SUPPORT FROM VALLEY VENTURE CAPITALISTS
By Matt Marshall
Mercury News
Posted on Thu, Aug. 14, 2003
siliconvalley.com
Millionaire Arnold Schwarzenegger hasn't made much money from his investments with local venture capital firms so far -- in fact, some have been duds.
Still, he's been cautiously courting the area's VC community, and may well be able to corral its support in a way last year's Republican candidate Bill Simon wasn't able to.
Last year, Schwarzenegger helped raise $90,000 for the BizWorld Foundation, a program founded by Tim Draper, venture capitalist at Draper Fisher Jurvetson. The program teaches children the basics about business.
Draper now considers Schwarzenegger a friend, and says he'll be supporting Schwarzenegger. That's significant, because Draper, normally politically active, was mum on Simon's candidacy last year. ``I will be coming out big for Arnold,'' Draper said. ``He could be a really fantastic governor.''
And Schwarzenegger will likely win over Simon supporters like Floyd Kvamme, the venture capitalist with Kleiner Perkins Caufield & Byers who is President Bush's technology adviser and has been active in Republican circles for years.
``It's time to just shake the system up,'' said Kvamme, who said he was impressed by the actor when he stopped by to lobby Kvamme last year for support of the After-School Program Initiative, which voters later approved in the election.
(The initiative provides state funding for schools wanting to set up after-school programs for children.)
On Wednesday, Schwarzenegger enlisted Warren Buffett, an outspoken proponent of expensing stock options, to be an adviser. (Maybe some of the VCs lobbying for him will cool on Arnold when they hear?)
At first glance, it's a bit strange that Schwarzenegger is soliciting help from Silicon Valley in the first place. His investments haven't done well at all. (On second glance, he could use their political contributions and backing, even if they haven't made him any money.)
Little is known about the performance of his investment in San Francisco's Acacia Venture Partners, a venture firm that invests in health care companies -- where Schwarzenegger has more than $1 million invested, according to his financial statements.
But another investment, in Atherton's Angel Investors, has been one of the worst performing among venture capital funds. Angel is run by Ron Conway, who threw lavish cocktail parties at his home during the Internet bubble years and put money to work for stars like Shaquille O'Neal, Tiger Woods and Henry Kissinger -- and yes, Schwarzenegger.
In April, Conway disclosed to investors that he'd invested the entirety of his first fund ($25 million) and second fund ($125 million), and that they'd returned only 31 cents on the dollar, and 6 cents on the dollar, respectively. There's one great company among Angel's investments: Google. But even a whopping initial public offering probably won't make enough money to bring Angel into the black.
And another investment, in Menlo Park's Redpoint Ventures, has also done poorly. Or at least, so far.
Redpoint launched in 1999, and like Angel, made many investments at the height of the Internet bubble. Redpoint is led by two of the more aggressive young VCs in the business, Geoff Yang and John Walecka. But Redpoint's first fund, Redpoint I, was invested at the worst possible time, and hasn't done very well. Several high-tech companies it invested in have gone out of business, and others have sold for a loss. There appears to be little public information about it.
Redpoint's funds last for 10 years, and so some of the companies it backed might yet turn around. The rule of thumb is that a fund only begins showing its general performance after three years.
More is known about Redpoint II, a $750 billion fund that the firm raised in 2000. By December 2002, according to documents released by one public investor, Redpoint II had invested about a fifth of its fund. And of the money put to work, about a third of its value had been written down. It has so far returned no money to investors like Schwarzenegger.
While Schwarzenegger's standing among right-leaning venture capitalists might be strong, the VC community isn't a tightly knit behemoth.
``I think the recall is a waste of time,'' says Peter Levine, a VC at Menlo Park's Mayfield Fund, referring to the cost to the state and the confusion caused by the large number of candidates running for office. ``I think it's very disruptive.''
Mayfield's addition: Levine, it should be noted, was promoted this week to partner at the venerable firm. Levine, 42, worked at software company Veritas for 12 years, until he quit two years ago. He had pledged to his wife that he was retiring.
They moved to Santa Barbara, but within two weeks Levine said he began ``going nuts.'' He tried running, mountaineering, biking -- all the things he had envisioned for a perfect retirement -- but it wasn't enough. So he's back in Silicon Valley, and ready for the ``15 years of career'' ahead of him. At a time when many VC firms are laying off partners, it's a sign of hope.
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