Steve Lisson devotes his time to such questions. He is at once an industry gadfly and a font of information on venture funds; his Web site, InsiderVC.com, is followed closely by many in the business. With the help of Lisson and research firm Venture Economics, The Standard has assembled profiles of major VC funds raised in 1998 and 1999. Because dozens of funds opened during the peak of the tech bubble, we limited our list to several high-profile firms.
While any fund raised during the last few years is enduring tough times now, not every one is in the same boat. Funds raised by Battery Ventures, Kleiner Perkins Caufield & Byers, New Enterprise Associates, Sequoia Capital and US Venture Partners have their share of ailing dot-com investments. But they diversified into areas like biotech, networking and software for big companies. Also, they didn't spend their money as quickly as Benchmark and Draper did with their vintage 1998 funds, or as Hummer Winblad, Redpoint and Softbank did with their 1999 funds. The latter are the ones slowly coming into focus as strong candidates for subpar performance.
Any recitation of the funds in greatest jeopardy should start with Hummer Winblad and Draper Fisher Jurvetson. Ann Winblad and Tim Draper, the public faces of their respective firms, are better known for being well-known than for their skill at spotting promising startups. Winblad is a columnist for Forbes ASAP, and Draper is an investor in Upside and a long-time friend of Tony Perkins, who founded both Upside and Red Herring magazines. Yet both firms have suddenly turned press-shy. Representatives of the two firms declined to comment for this article.
After mixed success in three funds that focused on software companies, Hummer Winblad raised $315 million for its fourth fund, which it invested almost entirely in Internet ventures. "It's like the entire portfolio was made up of dot-com, swing-for-the-fences deals," says a limited partner for one of its funds, who asked not to be named.
So dismal are the prospects for Hummer's fourth fund - among its were a laundry list of dot-bombs including Gazoontite, HomeGrocer, Pets.com and Rivals.com - that general partner John Hummer recently felt compelled to send a letter to its limited partners. "It is an understatement to say how bad we feel about this," he wrote.
For his part, Draper took a scattershot approach that not only backfired when the dot-com sector collapsed, but also made the firm look careless. "I don't even count Draper as a real venture fund," says an institutional investor who has money in roughly 50 venture funds. "They're like this index fund that indiscriminately invested in everything."
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Correction: An earlier version of this article should have stated that Benchmark Capital's third venture fund has invested in a software company, Collabra. Also, due to an editing error, the story should have stated that Benchmark III has no investments in networking equipment, and that the $10 million loss the fund faced on an investment in 1-800-Flowers was as of Sept. 30, 2000. Additionally, the story incorrectly stated that Tim Draper is an investor in Red Herring. |
