recently rated:

Rated by 4

2.0 2.5 1.3 3.0 1.0

2.0

OrbiMed Advisors

 

$$$$$ New York, US East

top rated funds:

Rated by 16

3.8 4.5 4.0 3.8 4.2

4.0

Rincon Venture Partners

Certified

$$$$$ Santa Barbara, CA, US West

Rated by 16

4.2 4.1 3.7 4.2 3.6

4.0

Andreessen Horowitz

Certified

$$$$$ Menlo Park, US West

Rated by 43

3.6 3.8 4.2 4.2 3.8

3.9

True Ventures

Certified

$$$$$ Palo Alto, US West

Rated by 11

3.9 4.2 3.2 3.6 4.0

3.8

Mangrove Capital Partners

Certified

$$$$$ Luxembourg, Europe

Rated by 45

3.8 4.1 3.3 3.7 4.0

3.8

RRE Ventures

Certified

$$$$$ New York, US East

Rated by 107

4.7 3.8 3.7 3.1 3.6

3.8

Sequoia Capital

Certified

$$$$$ Menlo Park, US West

Rated by 33

3.9 3.8 3.8 3.4 4.1

3.8

Altos Ventures

Certified

$$$$$ Menlo Park, US West

Rated by 32

4.0 4.1 4.0 2.8 4.1

3.8

406 Ventures

Certified

$$$$$ Boston, US East

Rated by 64

3.9 3.8 3.8 3.4 3.9

3.7

First Round Capital

Certified

$$$$$ San Francisco, US West

Rated by 23

3.6 3.5 4.0 3.6 3.9

3.7

DFJ Mercury

Certified

$$$$$ Houston, US Central

Rated by 27

3.8 3.6 3.8 3.8 3.6

3.7

FLOODGATE

Certified

$$$$$ Palo Alto, US West

Rated by 11

4.0 3.8 3.9 2.9 3.8

3.7

Updata Partners

 

$$$$$ Red Bank, US East

Rated by 13

3.7 3.8 3.8 3.4 3.8

3.7

IDG Ventures SF

Certified

$$$$$ San Francisco, US West

Rated by 11

3.6 3.7 3.6 3.8 3.4

3.6

Flywheel Ventures

Certified

$$$$$ Santa Fe, US West

Rated by 19

3.7 3.6 3.8 3.5 3.5

3.6

August Capital

Certified

$$$$$ Menlo Park, US West

Rated by 64

3.8 3.5 3.4 3.5 3.9

3.6

Trinity Ventures

Certified

$$$$$ Menlo Park, US West

Rated by 15

2.9 3.6 3.8 3.3 3.8

3.5

Merus

 

$$$$$ US West

Rated by 21

3.5 3.6 3.6 3.2 3.4

3.5

Wellington Partners

Certified

$$$$$ Munich, Europe

Rated by 12

3.2 3.6 3.4 3.0 4.2

3.5

DN Capital

 

$$$$$ London, Europe

Rated by 30

3.3 3.4 3.3 3.7 3.7

3.5

Clearstone Venture Partners

Certified

$$$$$ Santa Monica, US West

Rated by 28

3.7 3.0 3.0 4.0 3.3

3.4

The Founders Fund

Certified

$$$$$ San Francisco, US West

Rated by 49

3.7 3.4 3.1 3.4 3.2

3.4

Menlo Ventures

 

$$$$$ Menlo Park, US West

Rated by 16

3.9 3.7 2.9 2.9 3.6

3.4

Versant Ventures

 

$$$$$ Menlo Park, US West

Rated by 10

3.6 3.4 3.9 2.7 3.3

3.4

DFJ Esprit

Certified

$$$$$ London, Europe

Rated by 13

3.0 3.8 3.5 3.2 3.4

3.4

Fidelity Growth Partners Europe

Certified

$$$$$ London, Europe

Rated by 16

3.9 3.6 3.1 2.9 3.5

3.4

GRP Partners

Certified

$$$$$ Los Angeles, US West

Rated by 61

3.8 3.3 3.0 3.5 3.4

3.4

New Enterprise Associates

Certified

$$$$$ Menlo Park, US West

Rated by 17

3.5 3.4 3.4 3.5 3.2

3.4

Scale Venture Partners

Certified

$$$$$ Foster City, US West

Rated by 39

3.4 3.4 2.9 3.4 3.5

3.3

Polaris Venture Partners

 

$$$$$ Waltham, US East

Rated by 28

3.4 3.4 3.4 2.8 3.3

3.3

Union Square Ventures

 

$$$$$ New York, US East

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Aspiring entrepreneurs be warned. Venture capitalists will provide money for your idea, but they often walk away with most of the value, especially if you are not careful. Like an amateur sitting at a table of professionals, the cards are stacked against your success, so be prepared. Know the game.

Here are some anecdotal facts. There are five times as many people working in venture capital as there are CEO's that are funded each year (~16,500 vs ~3,000). The average venture funded CEO is fortunate to make 1/10th to 1/20th the return on exit as the venture capitalists. Just the legal fees on a later stage deal will run $50,000 or more per party involved, and the venture capitalists always flip the bill, directly or indirectly. Who do the lawyers work for again"

No matter how nice, no matter how fair, and no matter how genuine a venture capitalist appears, you are being out-smarted, out-lawyered, and out-maneuvered the second you sit down and ask for money. The first step in winning is to understand their motivations: (1) control, (2) risk, and (3) opportunity, in that order. Let's take a look at all three.

The entirety of a venture investment centers around control, and control takes many forms: control of the board, control of the voting, control of the investment capital, and, most importantly, control of the management. Venture capitalists are "control freaks," and the psychology of control is embedded in nearly every aspect of the deal legal structure. Assume that most financing terms, from Board meeting frequency to protective provisions have some origin in control, and analyze them as such. Ask yourself: in good times and in bad, how do these terms affect my behavior as a CEO" For example, did Google really need to have 14 Board meetings in one year... ever"

Venture capitalists are excellent at managing risk. It is assumed that at most venture investments fail, but approximately one in ten succeed. Following this simplistic logic, a venture capitalist would need to make at least $10 from every $1 invested in a success to recover from the 9 losses. Now, not every deal is a total loss, but a lot are. Complex protections are inevitably put in place. Let's look at a common scenario: a company receives $10 MM for 50% of the stock in a participating preferred with a 2x liquidation preference. The company sells for $25 MM right after the investment. How much does the founding team make" Nothing. The "50%" is legalese.

Venture capitalists are not very good at spotting opportunities, or they might have better odds than 1 in 10. However, they are very good at "managing" opportunities as a result. Here are some examples. Venture capitalists do not say "no" (for risk of losing an opportunity). They postpone meetings until you are achieving success, and they flock around markets with success stories. Ever wonder why a venture capitalist calls you out of the blue asking about your company" It's probably because a competitor is succeeding. Every wonder what "demonstrate traction" actually means" It means a nine figure IPO or liquidity event in your sector. Your dream is just potential, and you will be held on the sidelines until "the time is right" for the venture capitalists to make money.

The irony is that the venture capital behavior is largely a response to other abuses by CEO's. At this point, however, the venture capitalists have gone too far. The opportunities in building a venture funded start-up are gone for the great entrepreneurs. It simply makes more sense to go it alone.

You can quote me without attribution.

Investors in venture funds, called limited partners, are pulling out or selling their commitments to provide essential capital to the venture model, causing the "Limited Partner Shuffle." Some experts are quoted as saying as much as 10% of all private equity positions will change hands this year in hasty transactions to generate liquidity, including premium positions by top-tier institutions like Harvard. See below:

http://www.bloomberg.com/apps/news"pid=newsarchive&sid=azBqn85_aRXE

What does this mean and why is it relevant to entrepreneurs" A quick overview of venture capital will help to answer these questions.

Venture firms raise money to invest from limited partners (LPs), who are normally endowments, pension funds, insurance companies, and other institutions that manage large amounts of capital. An investment in venture capital is considered a high risk asset class with the potential for high returns. The professional consulting firms that publish guidelines for how limited partners should allocate money across asset classes generally recommend that a small portion go into venture capital, sometimes less than 1%. This small percentage still amounts to many billions of dollars per year being entrusted to venture firms by limited partners, who control trillions of dollars.

Generally speaking, a commitment to invest in a venture fund does not require the limited partner to transfer money until the venture firm makes an investment in a portfolio company. So, a $100 MM venture fund does not have $100 MM sitting in the bank. Instead, as venture firms make successive investments, they collect money from their limited partners and distribute that money to portfolio companies in rounds. To cover operating expenses, the venture firms separately collect approximately 2% of the invested capital as a management fee.

In order to ensure that each limited partner honors their obligation to provide money when needed, which is referred to as a capital call, venture funds implement onerous terms for forfeit or default. The most common default protection is to wipe out any returns from all previous invested capital. This encourages an active secondary market for limited partner positions, since it makes more sense to sell a commitment than to lose the value of the money invested to date.

Fast forward to Q4 2008, and you have the perfect storm of venture capital destruction. First, a relatively large number of limited partners, such as AIG and Lehman Brothers, are facing solvency issues, and they can no longer honor any capital calls to venture capital funds. The large scale dissolution of limited partners is something new.

Second, as the equity and debt markets have collapsed, the allocation of limited partners to venture capital has increased as a percentage. If an LP has $1 billion under management and 1%, or $10 MM, committed to venture capital and if that $1 billion suddenly becomes $500 MM, the allocation schedule of 1% stipulates that the LP now only invest $5 MM into venture capital. Many LPs have charters that strictly govern these percentages, forcing the LP to sell commitments in the secondary market to comply.

Third, many potential buyers in the secondary market have liquidity issues of their own. The purchase of a commitment requires resources to buy the asset, resources to pay for future capital calls, and resources to cover management fees at a time where the future is uncertain. The lack of liquidity and uncertainty has caused a collapse in the secondary market values, with many commitments selling for $.50 on the invested dollar or less. This in turn has encouraged limited partners that might otherwise commit to new positions in venture funds to consider purchasing discounted positions in existing funds.

Lastly, venture capital returns have been hard hit by the downturn, reducing or eliminating the ability of certain funds to get back any of the original invested capital. Portfolio company acquisitions are on hold, and the IPO market is frozen. For many limited partners, investing more money into certain venture firms is literally throwing good money after bad when cash is king.

Most venture firms worldwide are facing problems as a result of this "Limited Partner Shuffle." The best firms are distracted by helping limited partners transfer commitments. Other firms will cease making investments for some period of time, possibly forever. Still other firms will not be able to collect their management fees and go under in the next fews months. Nearly everyone will be fundraising and spending a lot less time with their portfolio companies.

Many entrepreneurs are now pitching firms without a future, wasting invaluable time. These "Walking Dead Funds" are going through the motions until the other shoe drops, forcing them out of business. Other entrepreneurs are counting on investments or participation from funds that have no ability to deliver any capital. Lastly, there are entrepreneurs with soon-to-be-insolvent firms that hold controlling preferred equity positions and Board seats, leaving a potentially deadly vacancy in governance and voting control. How do you sell when your primary shareholder is no longer around to grant approval"

As an entrepreneur in today's market, you need to understand the relative health of the investors that you deal with. Start by asking them directly about their financial resources and the state of their limited partners. Don't hesitate to ask other entrepreneurs and other funds as well. You future may depend on having good information about the solvency of investors that you deal with.

[Please reprint any or all of this post. Entrepreneurs need to know.]

I wrote this post on how the VC market is imploding which is not news to anyone on TheFunded, but I tried to take it a step further and talk about what it will look like post recovery. I read a great post on Seth Godin's blog about how everyone talks about the "crisis in our face" but not the "crisis in the distance." Anyway, here's a crack...let me know what you think.

As a funded CEO and as a careful observer of the venture market, it looks to me like a giant game of Roulette. When a new game begins, venture capitalists throw large sums of money at start-ups in a particular industry, just like throwing chips on numbers across a Roulette table. When the wheel starts spinning and the little white ball is rolling, more and more money gets thrown across companies in the chosen industry, until the table is brimming with chips and the dealer calls "no more bets." The ball lands, bouncing around for suspense, and the winners are called. As the table is cleared and a new game starts, a new industry is chosen, sometimes related and sometimes not.

This bizarre financing phenomenon makes some sense. Flooding an industry, like social networking or Web 2.0, with money helps raise industry awareness. Invested capital gets spread around between firms in an industry through licensing and other strategic deals. Venture partners learn the ropes as industry know-how and events emerge. And, covering the entire market with investments ensures that the one big winner will be venture backed. Having that winner in a VC portfolio makes up for all of the bigtime losses that the VC has racked up over the years, too.

I wonder who kickstarts the industry selection...

(You can quote me without atrribution.)

On Sunday, December 14th, the following presentation was delivered in Tel Aviv to 150 CEOs and VCs during the Globes "Israel Business Conference." It talks about the need to reset back to the fundamental partnership between the entrepreneur and capital in the current economic crisis. Enjoy!

So the NYC investment climate is going through serious issues. The angel market has drastically changed as most angels are from the world of finance and no longer have disposable investable cash and the few angel deals that are getting done are at far lower valuations. On the venture side, 'risk' is not being funded. Unless you have revenue (and don't need money) or extreme traction it's probably not worth the time raising money. Sure people who have made money for that exact investor in the past can still raise some money but beyond that, unless you're 'perfect' you'll have a hard time. Even then expect 2-3X liquidity preference, restrictive employment agreements and flat to down rounds even for high growth companies. I saw a company that is trending towards $20MM in revenue in a high growth category doing a flat round at a 3X liquidity preference. Times are tough. Time to call on the old friends and family and Bootstrap. It will not be fun. Still talk to investors and get coverage so they know you so if you happen to hit a stroke of luck or genius and take off, you can create some competition and maybe get decent terms but don't expect to easily raise money. Sure, you can get meetings and maybe even some feedback, don't expect an easy check from angels or VC's in NYC. Seed Capital has been crushed, Angel money is crushed and Series A money is trending towards Series B money or to pump into existing companies or entrepreneurs proven to that investor.

With all that said, always keep pitching but Bootstrap your ass off.

I just got off the phone with a friend who is founder/CEO of an early stage medical device company. His company is doing well and recently received a couple of term sheets for his first institutional round. As he was going through the process of negotiating with the potential investors, he said they were trying to set his expectations low. He told me a story about how one investor recounted tales of startups making mass layoffs, cutting back everywhere and generally dire conditions (basically sending the message that he should be happy to be getting an offer).

So my friend responded, "Wow, that sounds terrible. This must be really affecting you badly...how many people have you had to layoff here""

The VC stared at him with a bewildered look.

Read more here.

Can you imagine hearing this from a VC" Well, I did this past year and just about fell out of my chair when I did. Granted this was a fairly inexperienced partner who was earning his/her wings. Nevertheless, the risk tolerance of this individual will be his/her undoing! And yours too if he/she joins your board as a major investor.

Unfortunately, I have seen more and more of this behavior over the past few years which furthur fuels the fire that today's VCs are very different than those who led this industry in the 80s and 90s.

Make sure you figure out where the VC you are talking to is in the pecking order of his fund before you proceed or you will pay with time and frustration.

This business, particularly early stage ventures, is not for the feint of heart. How these folks think the venture business is in their comfort zone is beyond my comprehension. They would be better off serving as loan officers in a bank.

I saw a blog post by Georges van Hoegaerden titled, "Idiot CEOs." Here is the link:

http://www.venturecompany.com/opinion...-entry-id-148

A very amusing post that makes us CEOs think about financing alternatives to VCs.

Your thoughts?