Last Saturday, we wrote a piece about the decision by Sevin Rosen Funds, a big-name venture capital firm, to bag plans to raise another fund. The firm cited “terrible” investment conditions.
The rarity of the move suggested significance — a sign that there is trouble in the VC industry, with too much money floating around. The firm’s partner Steve Dow told us: “Giving back money is an unnatural act.”
We now get the back story from trade reporter Dan Primack. He’s suggesting the firm did a snow job on the New York Times, which first reported the story — making it seem that the only reason for the decision was a frank assessment of the environment. In fact, Primack says, the firm also had some internal troubles, and wanted to get ahead of them by spinning its decision not to raise money as a positive thing:
[NYT reporter Gary] Rivlin directed the firm to a Silicon Valley-based reporter named Miguel Helft, who spoke with SRF partner Steve Dow, and who also was given an explanatory letter that had been emailed to prospective LPs. Last Saturday, Helft penned an article that portrayed SRF as being one of the few firms with the courage to pull its money from where its mouth was. Similar press coverage soon appeared elsewhere, as Dow was extraordinarily accessible (as was the letter). He spoke with the Wall Street Journal, CNBC and myself, among others.
I don’t know who organized this press strategy • Dow? SRF marketing director Jennifer Michalski? • but it was extraordinarily effective.
…But the bigger problem for Sevin Rosen was that it was no longer in that crème de la crème category. Its first five or six funds • dating back to 1981 • had been absolute knockouts, but its more recent efforts had flagged.
..There also was some occasional strategy drift, as best evidenced by last fall’s decision to lead a $26 million Series D round for Firefly Mobile, which provides cell phones for pre-teens and their parents. Not only was FireFly’s consumer-facing strategy a bit outside of Sevin Rosen’s traditional competency, but it also was a late-stage deal at a pre-money valuation of around $100 million…Nine months later, however, Sevin Rosen wrote off the entire investment, after deciding to not participate in a company recapitalization. There have been a series of other severe write-downs or write-offs in recent months.
Of course, we too at VentureBeat took Dow’s word on his firm’s reasoning for the decision — even if we did point out the firm’s mediocre results lately, some partner departures and its Alien setback. After our story on Saturday, we heard back on Sunday from people saying, off the record, that the firm did indeed have some internal differences (and we updated the story to that effect), even though Dow told us there weren’t. Truth is, we’re still not entirely clear about the facts on this story. Dan has a good hard-hitting piece, but he doesn’t go as far to say that Sevin Rosen really had trouble raising the fund. We’ve reached out to the NYT’s Helft, in case he has any comment on this, and will update as necessary.
What do you guys think? What’s Sevin Rosen’s reputation like?
10 Comments
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john lawrence said:
I believe there still exists significant opportunity in venture. However, there must bo considerable upfront work and research done to ensure opportunity exists within a certain sector and with a particular company. Lonwgorth Venture Partners (www.longworth.com) just held its annual tech conference. See our blog entry at http://www.longworthblog.com/. The general theme from our conference, which I agree with, is that significant opportunity exists in the areas of wireless, small business, consumer, content an dmany other areas. Though the white board space is not as large as what it once was, significant opportunity exists and venture remains an asset class that will provide strong risk adjsuted returns.
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JB said:
There is some truth in SRF’s claims. Some (much?) money is likely to be lost as the returns barely cover committed capital. The SRF horse is out the barn already. Snow job (or not), the patterns are: poor financial returns, partnership dysfunctionality evident from public comments and partner departures, poor support from LPs evident from difficulty raising new funds, lukewarm to hostile support from entrepreneurs.
The real value is in applying those same criteria (and perhaps new ones that emerge) to existing firms known to be in deep trouble. Vanguard. Worldview. Before these straggling firms attempt to associate with and ride along the SRF story. Could MDV also be on that list, as where Sam Jadallah just stepped aside? We know Worldview where Mike Orsak, a partner publicly acknowledged a year ago to VentureWire and others he was stepping aside as a GP, wasn’t going to bring new deals and, owing to his non-support, Worldview couldn’t progress on a new fund. His theatrics and shouting battles prompted other GPs to leave the firm. And….Worldview still lists him as a GP and he continues to have an office at Worldview. What’s the story behind that? What are the implications for the firm, the other partners, the LPs, the entrepreneurs and companies in the firm’s portfolio? Digging into affairs at Worldview can make VentureBeat’s (or for that matter, Dan Primack’s reporting) credibility shoot up significantly. Threads uncovered there will all be about the future, what’s about to happen, and how pervasive (or not) they are amongst the stragglers amongst venture firms. All that will also be a lot more interesting (and valuable) to VentureBeat readers.
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SJ said:
Matt,
Your coverage on the venture community, including Worldview, Crescendo and SRF, and their respective challenges is giving those of us in the entrepreneur community significant insights previously not available. Please keep up the good job!!
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Leon Bollerup said:
Maby, those vc’s should start looking further into the future, be alittlle visionary and put focus on that.
I wont agree with the fact that there is not money made on the net, - if you look back over the past 12 month, and see what Web 2.0 have done, how many money is being moved around - who can ever have a sligth doubt about what impact Web 3.0 is going to have.
Maby some VC’s should consider investing in that - offcourse we are seeing VC’s as bressemer, Seed Capital and innoinovation investigating were to put money - hopefully - more will be able to look beyond and not just “give up”
Anyway, Matt - nice writing - keep up the good work.
With Kind Regards
Leon Bollerup
CEO // Lead Devleoper
Team ORCA
http://www.orcadesktop.com
——————————
.. at the edge of Web 3.0 .. -
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7 Trackbacks
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VentureBeat Wire » Did venture firm Sevin Rosen orchestrate snow job? said:
[...] See our story here. VentureBeat Community [...]
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NowPublic test » Blog Archive » Did venture firm Sevin Rosen orchestrate snow job? said:
[...] source NowPublic [...]
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The Wannabe Venture Capitalist » TECH cocktail 2 a Smashing Success said:
[...] Frank Gruber and I hosted our second TECH cocktail in Chicago at the Gramercy this past Thursday (October 12, 2006). The event was promising to be bigger than the first with over 400 RSVPs and ultimately 350+ attendees. We knew it was going to be a challenge to keep the fun factor high but I think we were able to pull it off judging by all of the great feedback we have received. Not too bad for a couple guys with a vision formed about eight months ago over some Potbelly sandwiches. [...]
4:12 pm
Texas Startup Blog: Entrepreneurship and Innovation in Texas » Blog Archive » Dallas VC Caught in Snow Job? said:
[...] Looks like VentureBeat feels they got stung as well. They took Steve Dow’s word on the reasons for the decision, but in their recent post, “Did Venture Firm Sevin Rosen Orchestrate Snow Job?” they indicate that after their story ran, several sources indicated that the real reason for the decision were related to internal differences. Put the best spin on your decisions in your own blog (does SR have a blog?), but don’t pitch a “snow job” to the New York Times - you might just get frost bit! [...]
6:38 am
robhyndman.com » Blog Archive » Sevin Rosen Shutters Fund said:
[...] Update: VentureBeat asks whether the original piece on Sevin Rosen was accurate. Related Posts [...]
11:36 am
VentureBeat » VC investors doing well, mega buyout guys doing even better said:
[...] Dan Primack, at PE Week, provides some good perspective on these numbers. It’s important remember that much of the short-term (one-year) performance is “on paper” only, meaning it includes when investors mark up the value of their investments on internal books, but haven’t actually been sold those companies or taken them public yet. Still the good results do raise more questions about Sevin Rosen’s argument that the venture model is broken. [...]
10:56 pm
Kung Fu Apps » Blog Archive » 4 Reasons Why Traditional Enterprise Software Is Dead in 2007 said:
[...] There was quite a bit of discussion recently about whether or not the traditional venture capital model is broken. Much of the discussion stems from the fact that Sevin Rosen chose not to raise their tenth fund given the less-than-optimal return and exit conditions. Some said that Sevin Rosen pulled a snow job on the NY Times to spin their story optimally because the facts of the story were something else entirely. Whatever the reason, it’s obvious that venture models are evolving. I would suggest that traditional VC models are changing in the same way that enterprise software companies and customers of such are changing. Venture capital models and enterprise software needs to get evolve towards greater efficiency to remain competitive. [...]