Mohr Davidow Ventures says it is charting a course away from the cleantech and life sciences investing of the past several years and back to the firm’s information technology roots, and ultimately a smaller fund.
The Silicon Valley firm says the transition, which has been underway for about two years, will turn its investment focus to the software and services that are transforming information technology with cloud-based delivery and the use of data analytics.
In doing so, the firm is retreating from the cleantech and life-sciences bets that had become a big part of its strategy in recent years, says General Partner Bill Ericson, who spoke publicly about the shift for the first time.
“The reality is we concluded it didn’t make sense to put our limited partners’ money in things that would not generate returns in the early stage model,” says Ericson.
Going hand in hand with the new strategy is a smaller tenth fund that Ericson doesn’t expect to exceed $300 million. The firm’s present 2007 Mohr Davidow Ventures IX is $697.42 million.
The change is the result of a re-assessment of the firm’s money-making strategy in today’s uncertain environment. An examination of the MDV IX portfolio found its information technology investments were generating 2x returns and potentially 5x returns or better over time, says General Partner Bryan Stolle. “It has been pretty clear where we should be focused.”
Mohr Davidow says the change won’t mean ending support for portfolio companies. But it will bring a substantial shift in the construction of the portfolio going forward.
MDV IX, which is still making new investments but is more than half way through its capital, will end up looking quite a bit different than the $427.91 million MDV VIII. Seventy percent of the MDV IX will end up focused on information technology, compared with a third of MDV VIII. Only 15% of it will focus on cleantech and 15% on life sciences. Each of these sectors drew about third of MDV VIII.
The change also could lead to a new fund with a 95% focus on information technology and software, says Stolle. “We’re just starting the conversation” with limited partners, he says.
The firm says its new strategy has brought shifts in personnel. On the cleantech side of the business, General Partner Erik Straser is now an investment professional and partners Will Coleman and Sven Strohband are no longer with the firm.
On the life sciences side, Partner Rowan Chapman is no longer there and General Partner Sue Siegel left in May for General Electric.
The firm’s heightened software and services focus includes an active interest in a number of vertical markets. Included are financial services; digital education; e-commerce; digital health care; family technology; cloud infrastructure; cleantech IT; and digital marketing and advertising.
“It’s not that we’re not doing it,” says Stolle of the new focus. It’s just that the greater emphasis will come at the expense of the science-oriented initiatives in health care and cleantech. “We’re not going to do long science based investing,” says Ericson. With the tough macro conditions created by health-care reform and sharply declining solar module prices from Chinese competitors, “we can’t be subject to these huge hurricane level winds.”
Photo of Bill Ericson courtesy of Mohr Davidow Ventures.