The National Venture Capital Association ushered in a new board at its annual meeting in Washington, D.C., last week, and laid out an agenda that calls for reform of securities laws and increased awareness among legislators of the distinction between venture capital and buyout asset classes.
The group also named Ted Schlein, a partner at Kleiner Perkins Caufield & Byers, as its new chairman. Schlein succeeds Robert Grady, managing director at The Carlyle Group, who ended his one-year term with a scathing critique of the Sarbanes-Oxley Act and its effect on the ability of venture-backed companies to go public.
“Sarb-Ox has been an unmitigated disaster for the small cap universe,” Grady said, adding that government regulators do not appear to be aware of the extent of the crisis as regulatory burdens make it costly and cumbersome for small companies to tap U.S. public markets.
Given that many of today’s largest publicly traded companies started out with small-cap valuations—such as Intel Corp., Cisco Systems and Starbucks—Grady said that a shortfall in new small-cap issues has major implications for growth and job creation. Venture capitalists, he added, are also shortchanged on profits, as more exits occur through acquisitions carried out at lower prices than would be the case if IPOs were a more viable option for small companies.
Incoming chairman Schlein began his term by suggesting that “venture capital” is not a particularly appropriate term for the industry, since “capital is such a small part of what we do.” A term like “venture builders” would be more accurate, he said, given that most of a VC’s work entails taking companies from startup to maturity. However, no name change is currently on the table, said NVCA President Mark Heesen.
Schlein, returning from a trip with his family to Colonial Williamsburg, Va., also stressed the distinction between venture capital firms and hedge and buyout funds. “Venture capitalists are like the colonists, and the hedge funds and buyouts are like the people back in England trying to profit off the colonists,” he said.
Colonial comparisons aside, Schlein and other venture capitalists speaking at the NVCA’s annual conference in Washington, D.C., last week agreed that hedge funds and other investors not commonly associated with venture capital are increasingly moving into the space, focusing on late stage rounds.
But while hedge funds are eyeing venture assets, they don’t tend to have the same valuation metrics in mind as traditional venture capitalists, said Dixon Doll, co-founder and general partner of DCM, who was named chairman-elect of the NVCA for 2008.
“They’re perfectly happy with 3X to 5 X,” Doll said. “Three to 5X multiples are not our definition of a home run.”
Also last week, the NVCA named eight new board members. They are Ira Ehrenpreis of Technology Ventures; Jim Hale of FT Ventures; Pascal Levensohn of Levensohn Venture Partners; Paul Maeder of Highland Capital Partners; Kate Mitchell of Scale Venture Partners; Roger Novak of Novak Biddle Venture Partners; David Prend of Rockport Capital Partners; and Jonathan Root of U.S. Venture Partners. Each will serve a four-year term.
Originally, the NVCA appointed board member Heidi Roizen of Mobius Venture Capital to succeed Grady. But Mobius has decided not to raise another fund, and Roizen said that she felt that the chair position should be filled by an active investor. The NVCA then tapped Schlein to replace Grady instead.