Facebook co-founder and CEO Mark Zuckerberg poses at Facebook headquarters in 2007. The company has since become a rare great investment for big-time venture capital.
The Kauffman Foundation has released a new paper about the state of its own considerable historic investment in venture capital funds. The title, "We Have Met the Enemy...and He Is Us," says it all about the key revelation: that as an investor, Kauffman has made a terrible, terrible mistake putting money into VC. The foundation, which is endowed to the tune of $1.85 billion, is blaming itself for the sorry state of its VC returns, which have fallen off significantly from their 1990s highs. And it's demanding changes in the way that investors approach VC:
The data we’ve reviewed in this paper demonstrate that VCs are good capitalists. They act in ways that are consistent with maximizing their economic profits. [Investors] seem to be less-good capitalists, because they repeatedly fail to negotiate key economic terms that have a significant impact on their investment returns.
These guys have been investing in innovation for more than a decade.
I've been spending some time lately with the Pasadena Angels, a group of "angel" investors with a decade of experience in the early-stage venture capital space (really, more than that) and an admirable track record. I also quite like their motto: "It's more than money." In practice, this means that the Pasadena Angels — a group of individual investors working together in Southern California — provide mentoring in the same measure as financing to startup companies.
Entrepreneurs obviously need access to money. But they also need advice, guidance, and at times, a total rethink.
From what I've learned, the Pasadena Angels put young companies, some 300 per year, through their paces. Unlike notorious "pay to pitch" angels (a cadre that seems to be fading away), they're set up as a nonprofit, charging no fees for the opportunity to present business plans to their membership. I joined them a few weeks back for a culminating stage of this process, a breakfast pitch session where several entrepreneur finalists made their cases.
David Siemer of Siemer & Associates and Siemer Ventures.
I had a yet another great conversation with David Siemer last week. David is a Managing Partner at Siemer & Associates, a Santa Monica-based merchant bank that also has a venture-capital arm, Siemer Ventures (started in 2007). The reason I called David up was to quiz him about his reaction to a nice write-up in Los Angeles Business Journal, pointing out that Siemer Ventures was almost even in terms of investment pace with L.A.'s largest VC firm, GRP Partners.
GRP made 14 investments, making it the "most active" firm on the Biz Journal's list. Siemer made 13. GRP is working with $1.2 billion. Siemer is working with $35 million.
The pace is nothing new for David Siemer, however. "We're looking at doing 15 or 16 new investments this year," he said. "So far this year, we've done seven new deals."
Where the Googlers are in Los Angeles.
Great little post by the L.A. Times' Andrea Chang about how the technology industry in Los Angeles is growing up (she's reporting on an event that took place in Venice). Importantly, it's one thing to have the idealistic startups — but quite another to bring in the funding:
Panelist James Citron, chief executive and co-founder of mobile marketing firm Mogreet, said Southern California has come a long way and is finally attracting investment capital and interest.
“Ten years ago, it was very hard,” he said. “You had to fly up to San Francisco and do the Sand Hill Road dance, for those of you who know the venture capital world. Now they’re coming down here looking for great companies, so that’s a big fundamental change.”
Thomas Williams, senior site and engineering director for Google’s Los Angeles office -- which recently relocated to the Frank Gehry-designed Binoculars Building in Venice -- said he wanted to bring more tech events, mixers and partnerships to Venice to help it become “more of a tech hub.”
Venture Capital in Southern California panel. From right, KPCC's Matthew DeBord, Rustic Canyon Partner's Nate Redmond, Idealab's Alex Maleki, and Ben Kuo from socalTECH.
California is the capital of venture capital, so trends in the industry are vitally important to our state. In the aftermath of the financial crisis, VC fell off a cliff, declining from a high of $25.3 billion in 2008 to a low of $13.8 billion in 2010, according to Thomson Reuters and the National Venture Capital Association. So far in 2012, however, fundraising is looking up, with a first quarter total of almost $4.9 billion.
This is a pace that could deliver a $20-billion year in 2012.
But there's some bad news. Only 42 VC funds participated in these raises, waaayyy down from the 212 funds that were raising money in 2008. Also, a winner-take-all mentality is taking hold, decisively, in VC as five funds have accounted for 75 percent of total first-quarter fundraising — $3.6 billion. That leaves 37 other funds fighting over just over a billion in remaining funding.