In Monday’s email, I wrote the following:
“Smaller VC funds are in vogue right now, as seed-stage investors have become the new rock stars. Traditional VCs have become adult contemporary.”
The line was in reference to a larger argument about the potential consequences of changing carried interest tax treatment, but has generated a bit of independent discussion. It was used to introduce a panel at Angel Bootcamp earlier this week, was tweeted around and has generated some VC teeth-nashing via email. So it seems to be worth unpacking:
1. Angels, like rock stars, are loud. Remember back in the late 1990s, when venture capitalists were shouting their (paper) accomplishments from the rooftop (parties)? They would share their IRRs with any reporter, speak at any conference and pose for any magazine photo. Total media whoredom, with more johns than most of them could handle.
Well, much of today’s angel class also craves attention. Not so much for ego-stroking, but because they believe that higher visibility leads to better deal-flow. And these guys have amps that go to eleven, thanks to blogs and social networking tools lik! e Twitter. (Note: There are exceptions, of course… let’s consider Ron Conway to be Izzy Stradlin — great at what he does, but usually lets others step into the public spotlight).
2. Angels, like rock stars, can be impulsive. A growing percentage of angels have begun to follow a “spray and pray” strategy, investing in numerous companies within a single week. Sometimes these investments even get made without meeting key members of management (great biz plan) or, conversely, without having a clear sense of what the company plans to make (great management team).
Yes, this is a big generalization. Many angels hold their money tight, and want to hear entrepreneurs say something like: “I will be dedicated to making sure you get this check back within two years.” But those are usually smaller angels (i.e. cover bands, not rock stars).
Worth noting that there is a more generous corollary here, courtesy of a talk given earlier this week by angel/! entrepreneur/reformed VC Sim Simeonov: Most angels will lose money, bu t they improve their ROI potential by doing more deals (or at least a certain threshold of deals). We could call this the Theory of Prince (who has released 31 albums since 1978) — do a bunch of stuff that sounds interesting, and a few big hits will emerge.
3. Angels, like rock stars, are loved. Ask most any entrepreneur — particularly in Silicon Valley — for a quick comment on Dave McClure or Jeff Clavier or Chris Sacca or Chris Dixon or anyone else of their ilk. Chances are you’ll learn two things: (1) The entrepreneur has had an actual interaction with the person (often virtual), and (2) They’re smitten.
The first point matters because accessibility has been one of the great historical VC failings. The reason so many traditional VC firms have copied Josh Kopelman’s “office hours” is because entrepreneurs kept gushing about them, and VCs realized that they were missing out on a large demographic (kind of like why Pat Boone recorded a metal al! bum).
The second point is not based on transaction consumation, although plenty of those do occur (refraining from making a groupie reference here). Instead, it’s because many angels make a special point of listening to entrepreneurs, providing advice and even making introductions. The entrepreneur takes precedence over the deal.
4. Angels, like rock stars, are feared (and sometimes resented) by their elders. As IT startups get cheaper and cheaper to build, some traditional venture capitalists are beginning to feel disintermediated. If you only need $250k, why raise it from a VC firm that treats it like an option and presents a boatload of signaling risk? Plus, do those old guys even get it?
The typical VC response is to emphasize past experiences. But that’s a lot like an accomplished 60 year-old jazz musician complaining that Kurt Cobain only knew three cords. It just doesn’t matter because, sometimes, three cords is all you need to r! ock…
*** What’s $300 billion between friends? I made a BIG error yesterday in discussing PE industry overhang. Cambridge Associates puts the figure at a whopping $425 billion, but I mistakenly said that it was a whopping-er $850 billion (which is actually the amount of called & uncalled capital in market).
For more, I’ve posted a video interview with CA’s Andrea Auerbach.
*** Mea Culpa #2: Private Equity Insider was the first to have news of Tom Bradley and Mark Maruszewski leaving Pomina Capital.
*** Have a great weekend….
OpenGate Capital is among four early bidders for Newsweek, the magazine recently put up for sale by The Washington Post Co.
Zynga has acquired Challenge Games, an Austin, Texas-based social gaming company responsible for Duels and Baseball Boss. No financial terms were disclosed.Challenge Games had raised $14.5 million in VC funding from Globespan Capital Partners and Sequoia Capital. Zynga has raised around $240 million in total VC funding, from Digital Sky Technologies, Andreessen Horowitz, Tiger Global, Institutional Venture Partners, Kleiner Perkins Caufield & Byers, Union Square Ventures, Foundry Group and Avalon Ventures.
General Motors has formed General Motors Ventures, which will invest in technologies within the in the automotive and transportation sectors. It will be led by Jon Lauckner, who previously served as GM’s vice president for global product planning.
Enphase Energy Inc., a Petaluma, Calif.-based developer of micro-inverter systems for the solar industry, has raised $23 million in new funding from Kleiner Perkins Caufield & Byers and undisclosed strategic backers. This is the second close of a $63 million round. The initial $40 million infusion was announced in March, with Bay Partners leading and being joined by Horizon Technology Finance, Bridge Bank, Third Point Ventures, RockPort Capital Partners, Madrone Capital Partners and Applied Ventures. The company previously raised over $25 million.
Anulex Technologies Inc., a Minnetonka, Minn.-based maker of medical devices for spinal disk preservation and anular repair,has raised $18.26 million in a Series E funding round that could expand to $20 million. An undisclosed strategic investor was joined by Hatteras Late Stage VC Fund and return backers Affinity Capital, Delphi Ventures, MB Venture Partners, New Enterprise Associates, SightLine Partners and Split Rock Partners. The company previously raised more than $44 million, plus a $7 million “growth capital term loan” from Silicon Valley Bank.
Firm58, a Chicago-based provider of post-trade management software for the financial services sector, has raised $7 million in Series C funding fromreturns backers New World Ventures and North Bridge Venture Partners.The company previously raised $12.2 million.
Burstly, a San Francisco-based provider of a mobile ad platform, has added SoftBank Capital and Founder Collective to its Series A round. No financial terms were disclosed. The round’s original tranche was $1.8 million from Rincon Venture Partners and GRP Partners.
Graphite Capital has agreed to invest £100 million into London Square, a UK residential development startup.
HgCapital has agreed to acquire a majority stake in Manx Telecom, the main telecom provider for the Isle of Man, from Telefonica (Madrid: TEF). The deal values Manx Telecom at £158.8 million. CPS Partners is participating alongside HgCapital.
Kohlberg & Co. has acquired Maverik Lacrosse, a Long Island City-based maker of lacrosse equipment, apparel and accessories. No financial terms were disclosed. The company will be merged into the Kohlberg Sports Group platform, which also recently acquired hockey equipment manufacturer B! auer Hockey.
Marlin Equity Partners has acquired Datafarm, a Marlborough, Mass.-based provider of software that supports the regulatory business processes of life sciences companies. No financial terms were disclosed. Datafarm will be merged with Liquent Inc., a company Marlin acquired late last year from Thomson Reuters.
Royal Bank of Scotland is reviewing six second-round bids for its $4 billion payment-processing arm, and is expected to select two or three for the final round. The six suitors are: Clayton, Dubilier & Rice, American Express with Permira, Atos Origin, CVC Capital Partners with Welsh Carson Anderson & Stowe, Advent International with Bain Capital, Moneris Solutions and TPG Capital.
TPG Cap ital has completed its $1.3 billion acquisition ofAmerican Tire Distributors Holdings Inc., a Charlotte-based distributor of replacement tires to local, regional and national tire retailers. Sellers included Investcorp, Berkshire Partners and Greenbriar Equity Group. In related news, American Tire informed the SEC that it was withdrawing registration for a planned $230 million IPO.
Wellspring Capital Management has agreed to acquire OMNI Energy Services Corp. (Nasdaq: OMNI), a Carencro, La.-based provider of services and seismic services to the domestic oil and gas industry. The deal is valued at $122 million, including the assumption of debt, or $2.75 per outstanding share.
GXS has merged with Inovis, to create a global provider of B2B integration services. No financial terms were disclosed. Francisco Partners will be the combined company’s majority shareholder, while other existing backers includeGolden Gate Capital, Cerberus Capital Management and Norwest Venture Partners.
Affinity Equity Partners reportedly has agreed to sell Australian pallet maker Loscam Ltd. to Chinese container company CIMC, which beat out competing bids from Champ Private Equity and Pacific Equity Partners.
The Blackstone Group reportedly is in talks to sell the UK property assets of Center Parcs for more than £1 billion.
TDC, a PE-backed Danish telecom group, has abandoned plans to sell its Swiss Sunrise unit to France Telecom, after running into regulatory problems. TDC owners include Apax Partners, Blackstone Group, KKR, Permira and Providence Equity Partners.
Thomson Reuters has acquired Complinet Group, a UK-based provider of online regulatory solutions for the global financial services industry. No financial terms were disclosed. Complinet raise! d £18.5 million in 2008 from Fidelity Equity Partners (now known as Canter Equity Partners).
Firms & Funds
HSBC said it is in talks that could lead to five separate management buyouts of its private equity fund management businesses.
Peter Bell, a general partner with VC firm Highland Capital Partners, is relocating from the firm’s Boston-area office to its Silicon Valley office. Bell joined the firm in 2006, and sits on the boards of Desktone, ExaGrid Systems, Gigamon, InXpo, Ocarina Networks, SCVNGR, Virtual Computer andVMTurbo.
Rocky Lee has joined Cadwalader, Wickersham & Taft LLP as Asia managing partner and head of the law firm’s Greater China corporate practice. He previously led DLA Piper’s Asia private equity and venture capital practice.
Jon Nemo has joined Harris Williams & Co. as a managing director in charge of a new aerospace, defense and government ser! vices group. He previously was with Jefferies & Company.
Sean Ruhmann has joined Cambridge, Mass.-based advisor NEPC as a senior consultant in the firm’s alternative investments research group. He previously was a VP of investment banking with Goldman Sachs.