Alex broke news of the fund earlier this month, adding that the firm had committed more than $300 million to 118 companies in 2008, according to data from peHUB parent Thomson Reuters. That’s more than the $227 million the firm put to work at the height of the dotcom boom in 2000.
When I asked Draper today if he could tell me anything about the fund or why DFJ is raising it so soon after its ninth fund, he emailed to say that “We’re not allowed to say anything about any fund we may or may not be raising. SEC rules. Sorry.”
On the face of things, DFJ’s timing doesn’t seem ideal. Though the firm has never had trouble convincing its LPs to provide it investing capital, many endowments and other institutional investors have been walloped in recent months by the financial markets. As many already know, Harvard recently announced that the value of its endowment had fallen 22 percent as of the end of October and that it could decline 30 percent by the end of the 2009 fiscal year. Yale’s endowment similarly fell. Between June and early December, it lost 25 percent of its value.
DFJ has also received some undesirable attention in the newest issue of Forbes. In a cover story titled “Venture Capital’s Coming Collapse,” reporter Rebecca Buckman references a congratulatory cover story on Draper that I wrote several years ago, on the heels of the firm’s investments in Skype and the Chinese search service Baidu.
Buckman then goes on to report that ”many of the big universities, foundations and rich individuals who parked money in the firm’s flagship funds have yet to see a dime of profit from Baidu or Skype. Those homerun investments were made from a DFJ affiliate called Eplanet Ventures, in which only some of DFJ’s investors participated. (DFJ declines to say how many.)”
More damning, Forbes says that ”investors in other big DFJ funds raised around the same time as Eplanet have come up empty. The return on the DFJ’s $640 million Fund VII, raised in 2000, is a sickly –2% as of Sept. 30, according to quarterly statements sent out to the fund’s investors. So far it has paid back only $115 million to its investors, even though the fund is entering the ninth year of its ten-year life and should be realizing more gains. Many investments have been marked down significantly. Investors would have been better off buying the S&P 500 index, which is down 0.4% annually in the same period.”
Though DFJ is notoriously, and blessedly, transparent, compared with many more secretive venture firms, I highly doubt the firm would state its intentions so explicitly with the SEC if it weren’t sure it could raise its tenth fund fairly quickly. And to be fair, Buckman observes that the median annual return for all venture funds raised in 2000 is –1%. Indeed, the point of her story is that DFJ’s poor performance is hardly extraordinary.
Whether the Forbes piece will give pause to some of the firm’s already cash-strapped investors remains to be seen, I guess. No doubt that one, if not several of them, will not be returning for its new efforts. Though we wish that they would, firms’ quarterly statements don’t find their way to reporters by accident.
Still, I wonder if the Forbes piece will give pause to some of the firm’s already cash-strapped investors. Obviously, at least one of them is very unhappy. Though we reporters wish they would, private firms’ quarterly statements don’t typically find their way to us by accident.