Less than a month into the New Year, two top-tier venture capital firms have cut their funds. Mohr, Davidow Ventures (MDV), and Redpoint Ventures will collectively reduce their funds by a total of 387.5 million. MDV said last Tuesday (Jan. 22) that it would cut its MDV VII by another $200 million, making the fund’s total capital $450 million.
MDV was one of the first firms to trim its vintage 2000 fund, reducing $848 million MDV VII to $650 million in January 2002 (see chart, page 15). Its seventh fund has now been reduced by a total of 47%. Meanwhile, Redpoint received permission from its limited partners in December to make a second cut in Redpoint II by another $127.5 million, effective Jan. 1. The fund now sits at $750 million, down 40% from its initial size when it was raised in 2000.
Last year, 20 venture firms cut their funds by a combined 5.68 billion (see PE Week, 1/20, pg. 1), but the pace of new cuts indicates that 2003 may see even more reductions, making this the year of the incredible shrinking VC fund.
Nancy Schoendorf, co-managing director of MDV for the last five years, is unapologetic about MDV’s reduction and says there will be no change in strategy for the firm. “In 80% of our investments [MDV] is the first institutional investor,” she says. “We have always been aggressive investors in follow-on rounds for our companies. That will continue.” Nor will the areas of the firm’s investment change. “Semiconductors, software, both enterprise and infrastructure, networks and communications have been and will continue to represent our investment footprint,” Schoendorf says.
Schoendorf is understandably a bit fed-up with – if resigned to – interviews such as ours in which MDV is asked to explain the firm’s prudent moves to protect itself and its largely institutional investors from the need to invest hundreds of millions of dollars in questionable startups. Schoendorf reasonably points out that $450 million is closer to the “historical sweet spot for early-stage investments – the $300 million to $500 million range” – in which smaller amounts are allocated to promising technology companies. And with valuations for portfolio companies continuing to come down, the actual amount of ownership by early-stage firms such as MDV will remain relatively constant.
To be certain, the past year since the announcement of the first cut in MDV VII has been one of consolidation at the firm. The firm’s Seattle partner, Bill Ericson, is moving to the Bay area, “but this is due to the demands on Bill’s time and his desire to spend more time with his family, which is moving to this area,” says Schoendorf. “Bill will continue to pursue investments for the firm in the Pacific Northwest, and the firm remains interested in that region.”
The firm is closing the small office that it opened in Reston, Va., during the boom. However, Michael Sheridan, the firm’s East Coast partner, will continue with the firm.
At the same time MDV is moving from its longtime headquarters at 2775 Sand Hill Road into larger offices in Building No. 3 at 3000 Sand Hill Road, where its neighbors include Sequoia Capital, Sierra Ventures, Redpoint Ventures and others in what is reputedly one of the most expensive office locations in the world.
MDV lost one general partner, George Zachary, through resignation in early 2002, but today the firm is in recruitment mode. Schoendorf says the firm is seeking a new general partner to help seek out the kind of lesser-known technology investments for which the firm is best known.
Contact Jerry Borrell