Thursday, July 3, 2014
WALTHAM'S MATRIX LEADING VENTURE PACK ON BOTH COASTS
Steve Lisson Austin Texas Stephen Lisson Austin Texas Stephen N. Lisson Austin Texas InsiderVC.com InsiderVC Insider VC
WALTHAM'S MATRIX LEADING VENTURE PACK ON BOTH COASTS
FIRM CREDITS DISCIPLINE, INSISTENCE ON LEAD ROLE FOR STUNNING '90S RETURNS
Author: By Beth Healy, Globe Staff Date: 11/12/2000 Page: D1 Section: Business
BUSINESS
& MONEY WALTHAM - Paul Ferri keeps two client letters framed on the
wall behind his office door in this suburban haven of venture capital.
One
letter, dated Sept. 12, 1994, informs the Matrix Partners founder that
an overseas investment group would sit out that year's venture
portfolio. Results in Fund II had not wowed the group, and it was
"premature to make a judgment on Matrix Partners III."
Talk about an expensive decision.
The
other letter, sent in April 1995, contains a rave from an elated
American investor: "I have never seen a portfolio explode on the upside
as has Matrix III in the past year."
Matrix hasn't opened its
venture funds to new investors since. The firm has emerged as one of the
best performers in the business, according to several investment
sources, with a stunning 95 percent average annual return over the past
decade. It's a record that rivals even the venture industry's Silicon
Valley titans. And the returns on Matrix's latest fund appear to be
unrivaled on either coast.
This is fighting talk in venture
circles, where egos are huge and investment results are guarded like
family secrets. But with the stock market in the doldrums and dot-com
flops deflating venture returns after three sizzling years, it's a good
time to take a peek and see who has really made money in this field.
Stephen
N. Lisson, a writer in Austin, Texas, tracks top venture players on his
Web site, InsiderVC.com, much to the chagrin of the venture firms. He
has sparked controversy for researching and posting the returns on his
site, but his numbers, when checked with independent sources, appear to
be correct or in the ballpark.
According to Lisson's numbers,
Matrix's Fund V, a $200 million fund launched in 1998, is the best
venture fund of all time, with a 725 percent return. Lisson says it's
really too soon to judge funds of the 1998 vintage because they're young
and many of their portfolio companies haven't been sold or taken
public, or left to die yet. Venture funds, after all, have 10-year
lives. But in the case of Matrix V, he says, "Even if everything else in
the fund tanked, the internal rate of return of 725 percent would
stand."
This fund claims several hot deals, including telecom IPO
juggernauts Sycamore Networks Inc. and Sonus Networks, which turned
early-stage investments of $17 million into holdings worth more than $3
billion. Of the $450 million Matrix invested from funds III, IV, and V,
about $220 million went into companies that have gone public or have
been sold. That $220 million has returned more than $11.5 billion, the
firm says.
Matrix partner Timothy Barrows says a sharp discipline
kept the firm away from the dot-com mania that clouded the judgment of
many venture firms.
"There are things we could have made money
on," Barrows says. "We turned down Geo Cities," a company that helps
people launch Web sites.
But Barrows and his six Matrix partners
can only feel good about getting into telecom and optical firms early,
focusing on infrastructure and, more recently, storage. The firm is
famous for putting entrepreneurs from its past successes, like Cascade
Communications and Apollo, to work at the new firms. And it simply won't
do deals unless it's the lead investor, in first, with board seats.
The
recipe has paid off handsomely for entrepreneurs, too. Matrix has
helped create more than 2,500 millionaires at its portfolio companies.
More than 40 of those people can claim a net worth exceeding $100
million, the firm estimates.
Ferri says the firm wasn't always this good.
To
some extent, he understands why that overseas investor fired the firm
in 1994. Matrix's first two funds posted above-average returns, he said,
but they were nothing special.
"We looked like everyone else," Ferri says. "There was no reason anyone would come to see Matrix specifically."
But
the firm was in the process of a makeover it had started in 1990. It
decided to turn more attention to New England, instead of investing
two-thirds of its assets in Silicon Valley. It stopped investing in
medical devices and retail and focused only on high-tech start-ups. And
it decided to do only hands-on deals.
"If we're not the largest investors in a deal, we're not in a deal," Ferri says.
Thirty
years in the business has paid off, the 61-year-old veteran says. He's
not at all surprised by the carnage and losses overwhelming the new
entrants to the business, from fly-by-night incubators to start-up
venture firms.
"It looks like an easy business to be good at,"
Ferri says. As a result, over the past few years, pension funds and
other big investors have flooded venture funds with cash. "They've been
giving money to a lot of people who don't have a clue as to what they're
doing."
All the best firms do have a clue, of course. Other top
funds of venture capital's record decade include Sequoia Capital's Fund
VIII, with a return of nearly 402 percent, and Kleiner, Perkins,
Caufield & Byers' Fund VIII, with a return of 350 percent. These two
firms are considered the most successful and most experienced of
Silicon Valley.
Lisson's long view, assessing all the top firms
over the past decade, is this: "Vintage year after vintage year, fund
after fund, there is no question that Sequoia and Matrix will be at the
top."
People who run university endowments and foundations
corroborate Matrix's reputation. In the same company, venture experts
put Boston's venerable Greylock Management Corp.; North Bridge Venture
Partners of Waltham; Kleiner, Perkins; Benchmark Capital Partners - the
Silicon Valley firm of eBay fame - and Redpoint Ventures, also of the
Valley.
In the next breath come Battery Ventures of Wellesley,
Charles River Ventures of Waltham, and Oak Investment Partners of
Westport, Conn.
There are dozens of other fine firms with great
returns. But only one can be the best. One Boston endowment investor who
has money in many top venture funds - speaking on condition of
anonymity, so he wouldn't anger several successful and hyper-competitive
venture players - says of Matrix, "The last three funds have been
extraordinary."
"Matrix," he adds, "is in a league of their own."
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2014 Stephen Lisson
by lissonsteve
Transparency.
Let’s have a round of applause for CalPers, the giant state pension
fund, for transparency. Beth Healy of the Boston Globe (8/17/2001)
reports Money managers aghast that pension investor shows returns,
rankings. It’s a report card that has rocked the secretive venture
capital world, and one that even the `A’ students didn’t care to see
displayed on the refrigerator. Calpers, the giant California pension
fund that sets trends for many large investors, has posted on its Web
site the performance of every venture or buyout fund in which it’s
invested for the past decade. Firms typically guard these numbers
carefully, but the Calpers chart even says which funds are meeting
expectations, and which are disappointments. … The industry buzz around
the report stems from the secrecy with which venture firms and buyout
artists guard the specifics of their returns. Virtually every firm
claims ”top quartile” performance, and the numbers they give out are
suspect, venture analysts say. Steve Lisson of Austin, Texas, on his
controversial Web site, InsiderVC.com, tracks venture returns by doing
his own calculations on venture portfolios. He is the only independent
source on such numbers and has drawn fire from some venture capitalists
for breaking the code of silence. … over the long term, Calpers has been
doing something right. As of March 31, its average annual return for 10
years of private equity investing was 17.5%. The Wilshire 2500 Index, a
broad stock market benchmark, was up 13.9% in that period. Would that the federal government would do the same with alleged investment programs like SBIR.
Carl Nelson Consulting
http://www.carl-nelson.com/government2001.htm
Published by Carl Nelson Consulting, Inc, 1325 18th St NW, Washington DC 20036
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Washington Post | Steve Lisson | Stephen N. Lisson | New Enterprise Is Huge and Proud of It
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New Enterprise Is Huge and Proud of It
By Terence O’Hara
Monday, December 6, 2004; Page E01
Peter J. Barris runs the biggest stand-alone venture capital operation in the world.
His firm, New Enterprise Associates, sailed through 2002-03, the nuclear winter
of venture investing, with relative ease. Nearly every technology entrepreneur worth
his salt would put NEA near the top of his list of firms he’d most like to raise money
from.
Yet Barris and other longtime NEA partners continue to hear criticism from within
their industry that NEA’s girth is a handicap, that NEA has strayed from the one true
swashbuckling venture capital faith and become –institutional.
Barris has heard this criticism –that NEA is too big and spread out to create the
home-run investments that put managers of NEA’s more romantic, smaller rivals on
the cover of business magazines. He has a well-practiced response.
“I understand the question, or the criticism, at a philosophical level,” Barris said last
week. “But the empirical data don’t support it. The numbers don’t lie.”
Barris, who is based in Reston, became the Baltimore firm’s sole managing general
partner in 1999 after serving three years as part of a management troika. Since then,
NEA has indeed performed better than the vast majority of venture capital firms,
although not at the level of the highest-performing firms that manage much smaller
amounts of money.
“I would argue that size is an advantage,” he said. “We have a superior network of
entrepreneurs that have done business with us for years. We have the capital to see
an investment all the way through. We have the domain knowledge to match any
fund. And we have a presence on both coasts.”
“And,” he said, “we perform.”
NEA has 11 venture funds, three of them raised since 1999. None of the three funds was in the black at
mid-year. According to the California Public Employees’ Retirement System (Calpers), which invested in the
1999 fund NEA IX and 2000′s NEA X, those funds had an annualized internal rate of return of minus 24
percent and minus 0.9 percent, respectively, on June 30. Those numbers
may not prove much, however: It’s a rare fund from those years that has
a positive return, and there is ample time in which to realize a
profit,
which could be substantial. It takes up to 10 years to determine a venture fund’s final rate of return.
NEA IX is far and away NEA’s worst performer. “Not our most proud fund,” Barris said. NEA IX had 90
percent of its capital in technology firms, mostly telecom-related investments, Barris said. For early-stage
1999 funds like NEA IX, break-even is considered excellent.
NEA X, the firm’ s biggest, is performing substantially better than 75 percent of all other funds raised in 2000.
Barris said that since June 30, it has moved into positive territory.
Discussions with NEA limited partners –institutions and rich people
who invest in NEA’s funds –and others in the industry who follow NEA
closely reveal a common theme: NEA has become a better-than-average
venture shop, and is now big enough so that description means real money. On average, its portfolio
companies have a better chance of returning money to NEA’s investors than portfolio companies of other
firms. On average, it’s as good a bet as any for an investor who wants to play in venture capital. And for
institutional investors such as Calpers and other big money managers,
that’s as good as it gets. They’ve thrown money at NEA in the past four
years.
“Their structure enables them to handle large amounts of money,” said Edward J. Mathias, a managing
director in Carlyle Group’s venture capital business who helped NEA’s founders when they started the firm
in 1978. “An institutional investor wanting to invest $25 million can do so with NEA with some assurance
that they can have above-average –not hugely above-average –but
above-average returns. They have a high batting average. They hit a lot
of doubles instead of a few home runs.”
That may sound like feint praise, but Mathias is a staunch admirer of NEA and its people. Hitting a lot of
doubles in venture capital is no easy feat, he said.
Not everyone is as big a fan. Steve Lisson, the editor of InsiderVC.com, takes a dim view of NEA’s size.
“Larger funds can’t produce the kinds of returns of smaller funds,” said Lisson, whose company provides
analysis of and statistics on venture fund performance and management practices. “Returns vary inversely
with money under management, because the larger the fund, the less impact one monster hit will have on its
performance.”
NEA X is the largest VC fund ever. It raised $2.3 billion from its limited partners in 2000. The firm’s latest
fund, NEA XI, stopped raising money a year ago at $1.1 billion. Most of the largest non-NEA early-stage
venture funds max out at $350 million, and some more prominent venture capital firms would not know what
to do with that much. Novak Biddle Venture Partners, a Bethesda firm that has probably had the most
successful run of any local venture firm in 2004, raised a $150 million fund this year, then turned investors
away. Novak Biddle Partners III, a relatively small fund raised at roughly the same time as NEA X, was up
about 6 percent as of Sept. 30.
Managers of funds the size of NEA’s, Lisson said, inevitably have to do more later-stage and follow-on deals
because the universe of the best early-stage deals, which provide the biggest risk-return, is necessarily finite.
The most profitable funds are the ones that focus solely on the earliest-stage companies, and spend lots of
time and money on those companies at their birth, Lisson said. If NEA invested all of the $1.1 billion in NEA
XI in such small, time-consuming investments, it would need a heck of a lot more people than the 37
partners, venture partners and principals it has now.
To take an extreme example, think of Google Inc., whose early venture
backers made billions of dollars when the company went public this
year. NEA has financed more than 370 companies, and has a lot of big
winners
in its huge portfolio, but none would compare with Google.
Barris disputes the notion that NEA is forced to do more later-stage,
less-profitable deals. “As our funds have increased in size, the
percentage of early-stage, start-up deals as a percent of our total has
grown, not shrunk,” he said.
Institutional investors are more than comfortable putting money into NEA. Its performance, they say, is not
tied to one deal, and the firm’s track record over more than two decades speaks for itself. NEA’s first eight
funds, the last of which closed in 1998, have made huge amounts of money. NEA VIII, a $560 million fund,
earned an annualized internal rate of return of 168 percent.
Barris said NEA’s cost structure is distinctive in several ways. Most
venture capital fund managers charge a percentage of the fund’s size to
cover their expenses, typically 2 percent of a fund’s capital. NEA
doesn’t do
that; instead, it a budget of expenses expected to cover the costs of running the fund, including salaries, that
are then approved by a representative board of limited partners. For a large fund, that sharply reduces the
costs to the limited partners.
“Limited partners love this,” Mathias said.
Calpers, one of the most active investors in private equity funds,
committed $75 million to NEA X, one of the 10 largest investments it has
made in a single venture fund.
Most venture funds split the profits of a fund, the most typical split being 80 percent going to limited partners
and 20 percent going to the fund’s managers. NEA, Barris said, makes the split 70-30.
Inside the firm, profits from a deal are spread out across the partnership; no one partner takes more than
another in a single deal. That promotes a team atmosphere that is necessary in running a big fund, Barris said.
In most funds, a partner who leads a successful deal gets a bigger cut of the profits than other partners.
The result, Mathias said, is less the amalgam of egotists seen at many venture capital firms than a consortium
of super-smart people trying to make a lot of money. “It’s not a superstar kind of firm,” he said.
Although NEA has more money under management than any other stand-alone venture capital firm –some
Wall Street private equity firms that do venture investing have bigger funds, but tend to engage as well in
leveraged buyouts and hedge investing –Barris said there’s no prospect for his firm becoming dominant in
the venture capital world.
“The industry has just gotten more competitive, not less,” Barris said. “Even with our huge funds, we still
have only 2 percent of the total amount of VC funds under management. In this business, it’s not who has the
most money but who has the most expertise that matters.”
And is NEA an “institution,” that staid word that makes many small venture capital firms shudder?
“I don’t know what the definition of institutional is,” Barris said. “I think we’ve gone farther than most firms
in institutionalizing what has been a cottage industry. We employ some professional management techniques
and policies. But because we started the firm on both coasts, we’ve had those things from the beginning. So I
don’t think we’ve changed much as we’ve gotten bigger.”
Terence O’Hara’s e-mail address is oharat@washpost.com.
© 2004 The Washington Post Company
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Friday, November 29, 2013
Barron’s
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What Goes Up:
After soaring, this year’s IPOs have returned to earth
By Jack Willoughby
12/11/2000
Barron’s
Page 35
(Copyright (c) 2000, Dow Jones & Company, Inc.)
Much of the
cleanup remains to be done. Many famous venture capital firms are stuck
with huge amounts of devalued stock. “Most of those triple-digit returns
that venture-capital firms are so fond of reporting will never
materialize because they are not based on reality,” contends Stephen N.
(Steve) Lisson, Austin-based editor of InsiderVC.com,
which tracks performance. “Sure, the dot.com fallout has been gruesome,
but much of its effect still remains hidden. Even today many VC funds
are still reluctant to write down their investments because they want to
keep attracting new capital.”
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Matrix Edges Kleiner
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Matrix Edges Kleiner
by Paul Shread
January 29, 2001–Kleiner Perkins Caufield & Byers and Matrix
Partners are considered the cream of the crop among venture capital
firms, the kind of VCs that limited partners are fortunate to be able to
invest their money with.
So compliments paid, we set out to find out which was better.
Using the data of Steve Lisson, editor of InsiderVC.com, who tracks
VCs’ performance and considers Matrix and Kleiner the top VCs, we
applied a metric suggested by former Flatiron partner Dan Malven, which
we will call the “Malven Metric.”
Malven suggested the metric after our piece comparing Kleiner’s
performance in the IPO market last year with four other firms. In short,
we divide overall performance by the number of partners, thus measuring
wealth created per partner.
Malven cautions that that measure of performance could be skewed if
each partner at one firm has a lot more to invest than partners at
another firm, but Kleiner and Matrix appear pretty evenly matched.
Matrix IV in 1995 was a $125 million fund (and had distributed 11 times
that amount to its limited partners by the middle of last year,
according to Lisson), and Matrix V in 1998 was a $200 million fund that
had already distributed four times its LPs’ capital by mid-2000. Using
the conservative figure of five partners during the time that 2000 IPOs
were being funded, that means Matrix partners had $65 million each to
work with. (We did not include Matrix VI, a $304 million fund that was
only 30% invested as of June 30 last year.)
Kleiner VIII in 1996 was a $299 million fund that had returned 12
times its LPs’ capital by mid-2000, according to Lisson. Kleiner IX in
1999 was a $460 million fund that was 80% invested by mid-2000. Using
the conservative figure of 13 partners, Kleiner partners had $58 million
each to work with.
Now on to the 2000 results. Ten of Kleiner’s companies went public in
2000 (0.77 IPO per partner), compared to 4 for Matrix (0.80 IPO per
partner). Kleiner’s stake in those companies was worth about $2.3
billion when the lock-up period expired (one company, Cosine
Communications, is still in lock-up, and Kleiner’s stake in the company
is worth about $100 million). Matrix’s stake in its four IPOs was worth
about $1.6 billion when they came out of lock-up. That gives Matrix a
per-partner return of $320 million, and Kleiner $177 million, giving the
edge in per-partner wealth creation to Matrix.
A few caveats on those results. First, we measured performance in the
IPO market only; we did not look at acquisitions, the number of which
often exceeds IPOs in a given year. Second, Kleiner has two health care
partners, according to Malven. Since health care companies had a tough
year in the IPO market last year (Kleiner had no health care IPOs),
reporting the results based on IT partners only raises Kleiner’s
per-partner wealth creation to $209 million. We certainly want our top
VCs to focus on the future of health care regardless of market
conditions, and there’s been quite a debate going on within the venture
capital industry about IT versus health care investing. The third caveat
is that Kleiner IX is the newest of the funds measured, so that too
could give Matrix an edge. But don’t feel too bad for Kleiner; according
to Lisson, 6-year-old Kleiner VII was the best-performing venture fund
last year, still riding high on its monster hit Juniper Networks
(NASDAQ:JNPR). That fund has returned more than 20 times its limited
partners’ capital.
Matrix’s big hit of 2000 was Arrowpoint Communications, which netted
Matrix $1 billion when it was acquired by Cisco (Nasdaq:CSCO) in June.
Kleiner had holdings in three IPOs that were worth $500 million or more
when they came out of lock up: ONI Systems (Nasdaq:ONIS), Handspring
(Nasdaq:HAND) and Corvis (Nasdaq:CORV).
It’s not clear when or if the VCs sold shares in the IPOs. Cisco’s
stock, for example, has declined almost 40% since the Arrowpoint deal
closed. Kleiner’s biggest winners have held their value since the
lock-up period expired, but both companies had holdings that declined
substantially from their lock-up expiration price.
Both firms also had about $2 billion each in 1999 IPOs that came out
of lock-up in 2000, giving Matrix the “Malven Metric” edge there too.
But as Lisson pointed out, “This is splitting hairs amidst the
pinnacle of the field. A fun, interesting and worthwhile analysis, but
the distinction makes no difference to investors in these funds. The
amounts of money involved are trivial when viewed in context, the
venture capital segment in the alternatives portion of an entire
portfolio. Nonetheless, the LPs of both Kleiner and Matrix can thank
their lucky stars to be in these funds. It is amazing how these and a
few other elite firms can put so much distance between themselves and
the rest of field, repeatedly, in bad times as well as good.”
And finally, a follow-up to last week’s column on Summit Partners,
the most recent firm to join the elite $2 billion fund club. Lisson had
this to say of Summit: “As a private equity investor, Summit can
outperform some early-stage VCs, the reverse of how it’s supposed to
work. Now that’s a firm where unquestionably ‘there’s something in the
water’ consistently over the years.”
Corey Ostman of Alert-IPO and Mary Evelyn Arnold of VC Buzz provided research for this article.
Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas
STEPHEN N. LISSON, Plaintiff
Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin Texas
V I R G I N I A :
IN THE CIRCUIT COURT FOR THE CITY OF RICHMOND
John Marshall Courts Building
400 North Ninth Street
STEPHEN N. LISSON, )
)
Petitioner, )
)
)
VIRGINIA RETIREMENT SYSTEM )
)
and )
)
WILLIAM H. LEIGHTY, )
Respondents. )
ORDER
On the 30th
day of October, 2001, came the parties in person and by counsel upon
the Petition; upon the Grounds of Defense; upon the Demurrers; upon
evidence heard ore tenus; upon the representation of the parties that a
settlement had been reached and was argued by counsel.
UPON
CONSIDERATION WHEREOF, the Court finds that Plaintiff’s Petition is
sufficient to state a cause of action; that the Demurrers should be
overruled; that the parties have arrived at a settlement whereby: (1) Respondents have agreed to pay to Petitioner the sum of Seven Thousand Dollars and no/100
($7,000.00); (2) the Petitioner has agreed to a dismissal with
prejudice of all of his outstanding claims against Respondents; and (3)
Respondents have agreed that the dismissal of claims by Petitioner shall
not prejudice any right he has or may have to obtain documents from
Respondents subsequent to October 30, 2001, whether such requests for
documents be for the same documents previously requested or documents
similar thereto or documents of any nature whatesoever.
Accordingly, it is ORDERED that this cause be and the same is hereby dismissed with prejudice;
And this cause is hereby removed from the docket and placed among the ended causes.
ENTER: / /
__________________________________
Judge
We Ask For This:
____________________________p.q.
Larry A. Pochucha, Esquire
Attorney for Stephen N. Lisson
VSB No. 15674
COATES & DAVENPORT
5206 Markel Road
P.O. Box 11787
Richmond, Virginia 23230
(804) 285-7000
Facsimile: (804) 285-2849
___________________________p.d.
Michael Jackson, Esquire
Attorney for Virginia Retirement System
Assistant Attorney General
State of Virginia
900 E. Main Street
Richmond, Virginia 23219
(804) 786-6055
Facsimile: (804) 786-0781
____________________________p.d.
Robert A. Dybing, Esquire
Attorney for William H. Leighty
Shuford, Rubin & Gibney, P.C.
P.O. Box 675
Suite 1250, Seven Hundred Building
Richmond, Virginia 23218
Office (804) 648-4442
Telefax (804) 648-4450
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