A rising tide doesn’t lift all boats, as far as Clearstone Venture Partners is concerned. Despite a sanguine investing environment, lucrative investing opportunities, and a new $200 million fund, the 7-year-old firm is working hard to communicate that it’s no run-of-the-mill venture firm.
For starters, Clearstone has altered its lineup. Most notably, Erik Lassila, a longtime managing director at the firm – and before that, a general partner at Charter Ventures – will leave the firm at an as-of-yet undetermined time.
Though Lassila remains on the firm’s website and is even scheduled to speak at an upcoming conference on behalf of Clearstone, firm founder and Managing Director Bill Elkus says, “Erik, who remains a managing director of our second fund, is not a part of our third fund. He’ll be pursuing another project within the VC community.” Lassila isn’t announcing yet what that is, though he remains at Clearstone’s Menlo Park, Calif.-based office for now.
In closing its third fund last week, the firm also announced that it has promoted two people. Sumant Mandal, who joined Clearstone in 2000 as a principal, has been named a managing director, and Vish Mishra, who has been working with Clearstone for the past three years as a venture partner, has been named senior venture partner.
The two promotions have a lot to do with Clearstone’s past and, it hopes, future deal flow. Both Mandal and Mishra are charter members of TiE, also known as The Indus Entrepreneurs, which represents a worldwide network of entrepreneurs, investors and other professionals of South Asian descent. Mishra is the chair of TiE’s conference committee, and according to Elkus, the organization has “been the source of half our Northern California deal flow.” Though it’s not unusual for a venture firm to have close ties to TiE, Elkus also points out that the firm attends a lot its conferences and acts as a sponsor for various TiE events.
Clearstone’s ties to TiE have resulted in a number of investments, too, he says, including wireless LAN infrastructure provider Meru Networks; Mimosa Systems, which sells email recovery software and services to enterprises; and semiconductor company SiNett.
“We recognize that there are a lot of VC firms in Northern California,” Elkus says. “We’re not so arrogant to think that [entrepreneurs] will put us at the top of their list, so we’re always looking for an edge.”
Stressing the Differences
The new fund took nearly a year to assemble. Limited partners include the California Public Employees’ Retirement System, the University of California and the State of Michigan, among other public pension funds. The firm – formerly known as Idealab Capital Partners – says that accepting LP commitments from funds that are subject to Freedom of Information Act disclosures is only one way of differentiating itself. Another way that it is trying to set itself apart is by offering entrepreneurs a financial reward.
To wit, unlike so many in Silicon Valley who maintain that they invest in people, not in trends, Clearstone is reaching out to entrepreneurs and technologists. “We have some ideas and some money to invest and we’re calling on entrepreneurs to realize those ideas,” says Managing Director Jim Armstrong, who runs Clearstone’s office in Santa Monica, Calif.
Armstrong isn’t exaggerating about this shout-out. Back in January, he told Business 2.0 magazine that he was willing to invest in “a company that is Plaxo meets Evite meets LinkedIn.” Clearstone doesn’t appear to have invested in anything like that just yet. Its latest investments include DiVitas Networks, which unites wireless, office, and video communications in a common infrastructure; management software startup Integrien; enterprise compliance software company Certus; and SupplyFX, which develops software to match buyers and sellers of electronic parts.
Armstrong says that he’s currently prowling for someone who can create a better solution to Microsoft Exchange. “It’s doubtful that we’ll find a fully formed company, so we’re talking to individuals about how to get all your information in your email, yet process it in other applications. I’m talking with someone in Atlanta [about the idea] right now, in fact.”
Also, Clearstone is stressing its Southern California presence, which has an enormous economy, but a nascent venture industry that pales in comparison to its Northern California kin. Armstrong says that Clearstone has “excellent contacts in the aerospace, government and mobile applications” communities, including in San Diego, and that the firm’s presence gives it a competitive edge in getting in deals.
“There aren’t a lot of VCs down here,” Armstrong says. “We can make introductions that Silicon Valley investors can’t make.”
Neither Armstrong nor Elkus would discuss the terms of Clearstone’s new fund, but they conceded that fund-raising took about a year, in large part, they say, because of the formal and extensive due diligence process institutional investors are conducting these days. Also, Elkus says the firm had to negotiate with the public pension investors to “safeguard our requirements about keeping specific companies’ information confidential.”
Perhaps its next go round will be easier, though Clearstone will need some big wins. Its first, $105 million, fund, raised in 1998, did well in spite of its emphasis on Internet deals, with payoffs coming from the the IPOs of GoTo.com, MP3.com and NetZero. Its $350 million second fund, closed in ’99, has had just one standout winner so far: PayPal, which went public in 2002 and was later acquired by eBay.