U.S. Venture Funds Attract More Foreign LPs

Even though I said I wasn’t surprised by this week’s 2010 venture capital predictions, one item did catch my attention — the slide where 48% of U.S. VCs said they expect more foreign LPs to invest in their funds next year.

VCs are telling the National Venture Capital Association that the percentage of foreign money in their funds has been climbing from 5% to as high as 15% or 20%, said president Mark Heesen. Some LPs are attracted to the U.S. because funds here tend to offer more exposure to early stage startups than European or Asian funds, which are very late stage and more like private equity.

Also, foreign investors are more sophisticated than they used to be — an inevitable outcome of globalization. “They think, if I learn it in the U.S., maybe I can do it in my own geography,” Heesen said.

VC Predictions For 2010 Offer Few Surprises

The National Venture Capital Association’s annual survey of what VCs expect to happen in 2010 could have been written in part by Bill Gurley, the sage of Sand Hill Road. (Once again we link to his August blog post, “What Is Really Happening To The Venture Capital Industry?”)

Venture funds will shrink and the number of firms will shrink, said a majority of the 325 VCs surveyed, although they do expect to invest a few more dollars in more companies.

They also plan to invest more in clean tech and Internet companies along with companies in China and India. They favor later stage investments over seed and early stage — a fact that concerns NVCA President Mark Heesen, who worries about innovation — and they expect exit markets to improve slightly, with more mergers and acquisitions and a few more IPOs.

NVCA: The Tweets Are In

All week, Startuphire.com and the National Venture Capital Association have been sending out press releases highlighting U.S. jobs created this year by venture-backed companies — more than 35,000 to date.

They also asked employees of these startups to submit 140-character testimonials on what inspires them to get up and go to work each day.

Here are some of them:

“Our CEO is wearing gym shorts and a T-shirt right now. At bulbstorm.com, we’re too busy innovating to iron!”
Bart Steiner, CEO, Bulbstorm

NVCA Seeks Tweets

The National Venture Capital Association and Startuphire.com have partnered to publish a list of job openings at startups and are looking for 140-character “testimonials” about what it’s like to work at one.

These are supposed to be positive stories, and to make sure you get that message, startup.com has posted some sample Tweets, which sound a bit like they may have been written by someone who’s had too many cups of coffee — or perhaps knows English as a second language.

“You must have agility to be able to change hats mid-thought and analyze a problem in the opposite direction from someone else’s shoes.”

Another Time Drain For VCs: Board Seats

Venture capitalists are sitting on more boards than they were three years ago, according to data released this morning by Dow Jones and the National Venture Capital Association, and more boards than CEOs think they should.

VCs think they can handle 4.6 boards for early stage companies and 5.4 boards for later stage companies — but CEOs think those numbers should be 3.8 and 4.2.

CEOs also think VCs should have less control on boards than they do, and the two groups have a different perspective on board conflicts. For VCs the top issue is “executive management searches and changes”; for CEOs it’s valuation. (No surprises there).

NVCA president Mark Heesen says all these conflicts are going to get worse before they get better, as the venture industry continues to contract. Get the press release here, or see full survey after the jump…

How Many VCs Besides Frazier Tech Are Winding Down?

Possibly over 50, according to the National Venture Capital Association — and that doesn’t include firms that have not renewed their memberships in the trade association for next year.

The NVCA won’t name names, but reports that its membership has fallen from 480 firms in 2007 (an all-time high) to 450 firms in 2008 to 425 firms in 2009 — a decrease of 55 firms, over 11%.

Most of the firms dropping out did so because they’re not raising a new fund, said NVCA vice president Emily Mendell.

Third Quarter’s Top Venture Deals

Setting aside the fact that Dow Jones and Thomson Reuters/the NVCA/PricewaterhouseCoopers don’t agree on what they are, you get an interesting batch of companies when you combine the two lists.

Seventy percent of them (12/17) are in California, and nearly half — (8/17) — are in healthcare, most of them developing drugs or medical devices.

There are four clean tech companies, two social networks and three outliers — a wireless IT company, a company in Iowa that sells software for fundraising, and an oil and gas exploration company working in Africa. Only one (Solyndra) has raised over $100 million.

No, Wait, Venture Investments Are Up

They rose to $4.8 billion last quarter — up 17% from Q2, according to the latest MoneyTree report (based on data from Thomson Reuters, PricewaterhouseCoopers and the National Venture Capital Association). Deals, meanwhile, fell only slightly to 637, a drop of just 3%.

PwC’s Tracy Lefteroff called the new numbers “very encouraging.”

So how come Dow Jones said on Saturday that venture investing was down third quarter to $5.1 billion, a 6% drop, in a trend that “points to prolonged correction, shakeout”?

It depends on whose numbers — and whose prognosis — you believe.

Not So Fast On The New NASDAQ Exchange

NASDAQ OMX’s Bruce Aust told peHUB on Tuesday that NASDAQ has a new “lower-tier listing market” in the works that will be aimed at emerging companies and at financially solid companies that can’t meet the NASDAQ’s listing requirements.

The idea is to make it easier for companies to go public, which has been tough for over a year. Aust said NASDAQ has been working closely on this project — which would operate in Boston — with the National Venture Capital Association.

Not so, says the NVCA.

More Reasons For SEC Not To Register VCs?

Here’s an unpublished paper from two management professors — Andrew Metrick at Yale and Ayako Yasuda at UC Davis — on the economics of private equity. (The paper is due to appear soon in the Review of Financial Studies).

The two have analyzed data on 238 funds (94 VC funds, 144 buyout funds) raised over a 13-year period — between 1993 and 2006 — and looked at the revenue earned by fund managers.

The result? Buyout managers earn a lot more money than VCs.

“BO managers build on their prior experience by increasing the size of their funds faster than VCs do,” Metrick and Yasuda wrote. “This leads to significantly higher revenue per partner and per professional in later BO funds, despite the fact that these later funds have lower revenue per dollar. Conversely, while prior experience by VC managers does lead to significantly higher revenue per partner in later funds, it does not lead to significantly higher revenue per professional.”

Buyout managers who can successfully handle $100 million companies can transfer their skills to $1 billion companies and quickly grow their funds, while VCs can’t:

Private Equity Wants A Regulatory Exemption Too

Members of three private equity trade groups lined up today before the House Financial Services Committee to argue why venture capitalists should NOT be exempted from registering with the SEC under the Private Fund Investment Adviser Registration Act — and why private equity groups should get some breaks too.

First Argument: What’s in a name? “While I sympathize with venture funds that are too small to create systemic risk, I think it will prove very difficult to define a venture capital firm and distinguish it from most others,” said Douglas Lowenstein, president of the Private Equity Council. “I think it’s fairer to raise the threshold from $30 million to a level Congress deems appropriate. That would capture the larger firms, whether they’re venture capital or private equity or some other adviser, and treat ALL small advisers the same.”

Lowenstein said he was also thinking of the SEC and its need to preserve scarce SEC resources.

Second Argument: Anybody can be tempted. James Chanos, chairman of the Coalition of Private investment Companies, warned of “the growth of bubbles and fraud” if Congress lets venture capitalists off the hook with this law.

“We question whether any category of private funds should be relieved by virtue of their self-proclaimed investment strategy,” he said. “Fraud can be run with any asset class, and the definition of funds tends to blur over time.”

Catch NVCA’s Testimony Before House Financial Services Committee

NVCA Chairman Terry McGuire is scheduled to testify within the next hour or so on why venture capital funds should be exempted from the Private Fund Investment Adviser Registration Act.

The committee is holding what is shaping up to be a day-long hearing on three draft pieces of legislation — the other two would strengthen protections for investors and create a Federal Insurance Office — and has just taken a break for lunch. They reconvene at 1 Eastern/10 Pacific.

NVCA Is Happier With Congress

After all that lobbying, the National Venture Capital Association managed to get venture capitalists exempted from the proposed Private Fund Investment Advisors Registration Act that’s been working its way through Congress.

There is now new language in the bill reads:

‘‘(l) EXEMPTION OF AND REPORTING BY VENTURE 18 CAPITAL FUND ADVISERS.—The Commission shall identify and define the term ‘venture capital fund’ and shall 20 provide an adviser to such a fund an exemption from the 21 registration requirements under this section. The Commission shall require such advisers to maintain such records 23 and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.’’

NVCA Chairman Terry McGuire will testify before the House Financial Services Capital Markets Subcommittee next Tuesday.

VC Braves Congress To Testify Again

Even though not all Senators believed him last month when he told a Senate subcommittee why venture capital funds should not be regulated like other private equity funds, Flywheel’s Trevor Loy was back in D.C. last week to continue to hammer on his points.

Here’s his testimony before the House Committee on Small Business, explaining how the Form D that VCs already have to file with the SEC could be modified to satisfy regulators who are worried about another meltdown of the worldwide financial system:

VCs Back Healthcare Startups Whose Diseases They Know

If they or a friend or family member have had a medical problem that you help solve, your chance of getting funding may improve, according to a video made recently by the National Venture Capital Association.

This was not the point of the video — the NVCA made it to highlight innovation created by venture capitalists in light of the threatened regulation of their funds by Congress. But VCs’ experience with healthcare problems does influence their funding decisions, according to what they said on-screen.

Kate Mitchell of Scale VP, for example, backed a company that made catheters to zip-close vericose veins because her family has a history of diabetes. “The fact that we took something that was a nutty professor idea and made it accessible to my mother and her friends, and are really solving a problem out there, is pretty exciting,” she said.

PEHUB Community

Join the 12500 members of peHUB to make connections, share your opinion, and follow your favorite authors.

Join the Community

Look Who’s Tweeting

Psst! Got any hot tips?

  • This field is for validation purposes and should be left unchanged.

PE HUB News Briefs

RSS Feed Widget

Marketplace

VCJ Headlines (subscribers only)

RSS Feed Widget

Buyouts Headlines (subscribers only)

RSS Feed Widget

Reuters VC and PE feed

RSS Feed Widget