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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Steve Lisson Austin Texas Stephen Lisson Austin Texas Stephen N. Lisson Austin Texas InsiderVC.com InsiderVC Insider VC
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
