"Even a chimpanzee could raise $100M"
There's been a lot of news lately about new venture capital firms getting off the ground.
Primack has a summary here, of the various players, and some of them based in Silicon Valley. There's Menlo Park's Formative Ventures. There's Panorama Capital, the name chosen by the VC team from JP Morgan Partners. And there's the "Brooks/Levine Fund," raised by former Mayfield general partners Todd Brooks and Peter Levine, who Primack says are looking to raise $200 million for their first fund as a duo (story here).
We don't at all imply that Michael Moritz, partner at Silicon Valley firm Sequoia Capital, meant to target these firms, when he reportedly said the following: "I believe today even a chimpanzee could raise $100M for a venture capital fund." We're just pointing it out (see comment on this post), as a reference to how easy money is raised these capital-flush days.
Update: Peter adds perspective in comments.
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From: foosh's blog
Some other points to note I think, are that, well how to do this as efficiently as possible. Hmm. The once obvious solution becomes clouded. Well ok here goes.
October 22, 2005 2:55 PM
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Saying a monkey can raise $100M is like Bob Woodward saying breakthrough investigative journalism is a simple matter of answering the phone. Coasting with inertia is always easier than building momentum.
Raising $100M is NOT easy. The Formative guys worked long and hard to get their commitments. Regardless of what your non-VC readers may think, getting a $5-10M commitment from an investor for most VC firms takes a lot of work. (what you also didn't mention is that their anchor investor is Harvard University, one of the most respected LPs in the country.)
The readiness of LPs to invest in "brand extensions" (china/israel/late stage) of the older, better known venture funds does not imply it is easy to raise $100M for a new fund.
To be fair to Moritz, let me translate the entire paragraph as it appeared in TheMarker:
"People focus on the wrong subject. It is easier to raise money than to invest it. I believe today even a chimpanzee could raise $100M for a venture capital fund"
Despite the fact that Moritz's point one may be true (easier to raise than invest), his second point is absurd and insulting to newer groups with great track records but limited brand awareness. The only chimps he might be referring to are the ones who waltz into an established firm with a well-known brand and raise $100-300m with a few phone calls. Top tier brands are valuable assets and do by themselves feed further success, but the typical generational issues can blow up even the best brand-name firm.
Guys like Formative are proof that new blood in the industry can be a good thing, but that the entire system is stacked against it. Emerging-manager groups only look at JPM-type spinoffs, and pension fund gatekeepers don't touch new groups until at least Fund V. Formative received 90% of their institutional money from endowments - that really says something about the state of the LP market.
I would argue that the last thing we need in Silicon Valley are more $100M+ funds run by 2-3 partners. The VC industry has failed to restructure itself despite massive restructuring in the start-up community ever since the bubble burst.
If the bubble did anything, it forced entrepreneurs to learn to be a lot more efficient with capital. As a result, they need less capital but more hands on attention as they manage an increasingly globally outsourced and virtual operation. The $100M+ VC is looking to invest $5-15 million in a start-up, potentially overfunding it and creating great inefficiency. There are plenty of such larger VCs in the Valley, 250+ at last count.
Our fund, Nueva Ventures, is representative of one of just a handful today in the Valley that has built its investing and operating model around making <$1M investments in companies that can achieve cash flow positive within 12 months. We are not fee driven and our upside is totally tied to success of the fund, completely aligning our interests with our LPs. Like a best of class angel investor, we inject ourselves into the venture to maximize its chances of success.
Since our first close in February, I'm amazed at just how many start-ups we see in the Valley that meet our litmus test. There is a real need for investors willing to put less capital at work but more willing to roll up their sleeves and get involved, providing real value add based on deep operating expertise. It's unfortunate that there are so few of us, although a great opportunity for our investors. In many ways, there is a need to return to the roots of VC in the Valley.
My company during the dot.com bubble was funded by chimps. They were some guys who thought they were pretty hot on Wall Street and raised about $50 million to spread around.
It was a disaster. The guys knew nothing about technology, and even less about building a company. Their first outlays were for their own personal office furniture (I didn't know you could spend $4,800 on a desk chair but they found a way) and the advice they gave our company was so bad the CEO shreded their documents in front of them and demanded part of the equity stake back.
Reminds me of the line from a Fish Called Wanda.
"Apes don't read philosophy"
"Yes they do Otto, they just don't understand it."
I WANT $10 MILLION TO MAKE MY SITE GLOBAL.CAN YOU TELL ME HOW? KEE
"Saying a monkey can raise $100M is like Bob Woodward saying breakthrough investigative journalism is a simple matter of answering the phone."
that's funny, because bob woodward accidentally stumbled upon his key source for watergate, and was asking him for career advice in their first meetings. felt later chose to use woodward as a source when watergate broke.
woodward's own words, describing his first meeting with mark felt:
"As I think back on this accidental but crucial encounter -- one of the most important in my life -- I see that my patter probably verged on the adolescent. Since he wasn't saying much about himself, I turned it into a career-counseling session."
so, perhaps, a chimpanzee could do investigative journlism of the bob woodward variety.
this doesn't mean you're wrong about raising $100mm though...