VC firm Worldview Technology Partners closes shop; the "three strikes" rule
Worldview Technology Partners
, a Palo Alto venture capital firm that did well with its first fund several years ago, but has suffered with its subsequent funds after raising too much cash during the boom times, has closed shop.
(Update: We let some jargon slip in here. By "closed shop," we don't mean they're literally taking down the shingle; we mean they have decided not to raise a new fund. Thus the firm's partners will continue their responsibilities at the companies they've already backed, and thus try to make profits from their prior investments. Here's more from VentureWire, saying as much. Worldview never got back to us.)
PE Week had the story this morning, and we've confirmed it with our own sources. Here's what we learned:
Worldview was trying to raise a $275 million fund, but could only reach $100 million, and by that time some of its highest profile investors -- Stanford, Univ. of Michigan, Horsley Bridge, Pantheon -- started dropping out. And when that happens, all the other investors get nervous, because some of them are only interested when the high-profile guys are in. We're heard that co-founder James Wei then decided to pull out of the process -- essentially killing the firm. We've yet to confirm that.
We couldn't reach anyone who currently works at Worldview for comment. But this firm stuck out for us in other ways: We remember visiting the firm three years ago, sitting in the lobby while awaiting a meeting with one of their partners and hearing the partners yelling at each from behind the conference room doors.
So now you are asking why firms like Redpoint and Oak have been able to raise new funds, while Worldview hasn't.
The difference, we're told, is the poor results of those two other firms' boom-era funds can still be blamed on the Internet bubble bursting, and those firms showed less turnover among its partners.
Here are the three strikes against Worldview:
1. Strike one: Partner turnover begins. John Boyle, Ajit Shah and others left a few years ago. But who knows why these guys left? Perhaps differences in views about fund direction, perhaps they were underperforming. So investors call it strike one, but there's plenty of room left for Worldview to prove itself.
2. Strike two: Worldview's second fund, raised in 1998, a year that was terrific for investing in technology, doesn't do very well. Worldview focused on networking and telecom, but produced mediocre results despite the boom in that sector. It was hit badly when downturn happened. (In addition, its 1999 and 2000 funds are also showing negative returns, not a huge blow if everything is equal, but doesn't help).
3. Strike three: One of the founders leaves! Co-founder Mike Orsak last year threw in the towel on raising a new fund -- a decisive blow.
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There is a very compelling story in Mirapoint, a Worldview portfolio company. A growing company that was screwed up by Mike Orsak at a time when his partner James Wei was dealing with personal trauma. Greed and ruthless power play by Mike against the founder/CEO and founding team members of Mirapoint, recapitalisation solely to enrich his pocket against all prior investors and shareholders, all by someone that hasn't managed a company ever and had the balls to penalize a successful founding team, and now...nothing for anyone. The saying among savvy entrepreneurs is: avoid Orsak or be Orsakked. What a scumbag!
adding to the earlier comment: new to the venture business and working at worldview it was eye-opening to see some of the partners fight and screw portfolio companies. Mirapoint was not the only one where Mike Orsak played God and turned out to be the devil.
The high profile investors did due diligence and developed cold feet when they saw:
1) the senior partners were not all aligned, with one whose name figures in previous comments lording it over others;
2) portfolio companies that were profitable and poised for further growth and success were scrambling for survival following the intervention of certain partner(s) (see previous comments)
3) feedback from management and entrepreneurs about the partners was uniformly negative, scathing about a co-founder who had a talent for snatching defeat from the jaws of victory. His name? See previous comments :-)
What's missing, and would be interesting, is coverage on what happens after a venture firm closes down. Matt Marshall and others at SiliconBeat: how about some followup on what happens to the investments and positions held by failed venture firms in portfolio companies? the board seats occupied by partners in the (now extinct) venture firm? how does this affect employees, management, and other shareholders in those portfolio companies?
I agree with Jafco. That would be very interesting to see.
Partners left Worldview because of the dysfunctional dynamics of working with Orsak. His hubris, rapacity, and lack of integrity and scruples meant that those negotiating with him, whether partners or entrepreneurs or management, were bled out and left with nothing on the table to take home. Who needs that abuse?
I saw some people dancing with joy the last week. They all have experience interacting with Orsak and rejoice in his downfall. Schadenfreude. The only thing sad about this is the damage he caused-and how quickly!-to entrepreneurs and their dreams, and to his own partner's worldview.
I'll third Jafco's comments. I've watched startups wind down, but never funds.
This is the first of several firms that will be closing. You will see Mobius and Crescendo close shortly; their lack of liquidity, high turnover, and general disliking from the entrepreneur community will prevent their next fund from materializing. Firms like Redpoint and Oak can point LPs to prior investment records, cohesive teams, and onging goodwill with entrepreneurs.
Ok, some of these comments seem like they're coming from the same persons. I'd prefer people not engage in character assasination on this blog. Words like "scumbag" say nothing. Fact-based specifics are much better for everyone, and spark debate.
In many ways this is a great shame. I cannot speak to Mike Orsak's personality, but many of the people involved in Worldview - Wei, Savage in particular - were genuinely good people, and their CEOs thought very highly of them. Of course, the firm did itself no favours by losing (a lot of) staff, even if the GP turnover was for the best, and the performance is very disappointing. I suspect there was likely to be only one outcome here, but I have seen worse firms get funded.
Perhaps if they'd asked for $800m or $1bn they'd have already closed on it!
I agree with Wibble. James Wei was, and is, a genuinely good person. Our business had a close working relationship with him for several years. Our CEO worked closely with him and spoke highly of James as did other CEOs/entrepreneurs we know that worked with him. Colin Savage, Tim Weingarten, and David Suzuki were also very supportive and effectibe.
Too bad James, Colin, Tim, and David didn't get the success they deserved. The Merc's comment about noting partners yelling at each other several years ago and the grapevine are quite aligned. One partner was more interested in being acknowledged as a co-founder and being ranked by Forbes as someone with the "Midas Touch" than actually helping Worldview succeed. Worse, his was the Touch of Death.
A key takeaway from this is that the outcome--success or failure--is very influenced by our choice of partners. One bad apple is enough....
For most LPs, a large amount of turnover of senior investment professionals is never good. It either means the Managing GPs are difficult to work with or they don't know how to hire good investors. Either one is damning, and I've heard complaints about others besides Orsak there as far as being quality investors.
The only time I met Orsak, he was THE most arrogant person I had ever met, and I've met a lot of arrogant people. While other VCs were busy courting entrepreneurs, he showed an obvious disrespect for entrepreneurs, refusing to give them the time of day while he seemed eager to kiss up to more succesful VCs. Having said that, Orsak-bashing is irrelevant. GP ego and bad behavior doesn't kill funds, bad IRRs do. Sometimes the two are related, sometimes they are not. Managing partners need to have the structural ability to kick out the loser partners before they drag down the whole fund. If Wei acted too late in cutting Orsak loose, let that be a lesson for others not to run their VC partnerships like tenured professorships.
VCs routinely fire a CEO for acting too slow in firing an ineffective VP of Sales or CTO. Here, the LPs have "fired" the GPs.
#1 are VCs that are nice and successful. If you are an entrepreneur/employee, what a pleasure to have them on your side!
#2 are VCs that are not nice and successful. Count their abrasiveness as the price of success.
#3 are VCs that are nice and unsuccessful. Working with them may not lead to success but it won't be abusive.
#4 are VCs that are not nice and unsuccessful. The worst of the lot. Guaranteed failure and guaranteed abuse. Are you a masochist to want that?
For Worldview the comments so far indicate Wei and some other partners were spread over categories 1-3 while Orsak monopolized #4. Gives me the shivers to think of companies that await his kiss of death and abuse.
In response to the comment from JeffG that Crescendoās entrepreneurs "dislike them". . . Veritage Group surveyed all of Crescendoās entrepreneurs a couple of years ago and the vast majority of the entrepreneurs that work with the current Crescendo team gave the GPās high marks for responsiveness, knowledge and integrity. This team has been in place for five years. JeffG's comments about the current Crescendo team are unfounded.
Gee Jane, are you in the running to raise Crescendo's next fund?
I agree with your catagorization. Given that firms like Vantage Point dominate almost single-handedly the #4 catagory, why do their investors continue to give them BILLIONS? BTW, I know about their qualification from personal, direct experience.
I don't have any experience with Worldview, but it looks like the end was well-deserved.
There's an interesting commentary over at PE Wire about these blog comments.
I have a hard time understanding why anyone would take as fact some of the anonymous assertions above. In Silicon Valley, everyone has an agenda, people are out to take other people (at least their perceived enemies or competitors) down, and to boost themselves or their allies. So regarding the commment above about Crescendo, we talked with Crescendo's David Spreng yesterday, and he said it couldn't be further from the truth. His firm is doing well, he said.
Don't me wrong. Comments are valuable, and generally contibute to the debate. Just be aware of the agendas!
Many LPs care about the larger social impact of the VCs actions, and not just the financial returns of the investments. It's spin to say Worldview partners will take care of prior investments and everything is a-ok. For that to even be possible requires some hard decisions.
LPsā due diligence started with a recent investment Cemaphore, an old investment Cosine, and several others. In 2000-2004 we heard of portfolio companies poised for success with impressive revenues and margins. 2005-2006, in a vastly improved tech economy we saw those same companies and new investments struggling for survival. We confirmed Mike Orsakās active involvement in these ćturnaboutsä and simply lost confidence in him and a partnership that included him. The absence of a firm hand at the wheel contributed to an unmanaged Mike and the departure of other GPs, and this also disturbed us.
Some of the prior investments can still be led to profit. They may require further watering to achieve a successful exit for shareholders benefit. To invest further in existing portfolio companies LPs need to see leadership now on long-pending items (e.g., eliminate Mike Orsakās involvement in the firm) and adapting to new circumstances (rekindle the fire that made those investments successful at one point and likely to succeed ahead, repair/rebuild and win back the trust of the entrepreneurs, employees and LPs).
Can James Wei, Susumu Tanaka, and the various partners make those decisions?
While I can't speak to the relationship between the partners at Worldview, I can speak for one of the three portfolio companies whose boards Mike Orsak serves on, and over the time I've been at Mirapoint, he has always been supportive of the management team's efforts to work to grow the company, to make necessary strategic investments and he was always willing to help out whenever it was required.
Frankly, I find a lot of the dialogue above pretty entertaining and clearly the work of some who have an agenda.
What I find more compelling though, is the obvious misrepresentation of the facts in both the PE article and Matt Marshall's followup. Worldview, if you follow James Wei's comments in a follow up story this week, is by no means shutting its doors. What has happened, and while this is not a good sign, it definitely is not an absolute death knell, is they failed to raise the requisite amount for the fund, and decided to shelve that fund for the foreseeable future. To characterize this as Worldview shutting their doors is irresponsible and sensationalist journalism.
Does this mean their might be changes at Worldview prior to going back to market - one can surmise that may be the case. However, Wei indicated they still have $200mm to invest - based on how VCs are compensated via management fees, that appears to be plenty to keep Worldview up and running for a few years.
LPs have clearly shown they have no confidence in the partnership.
Good VCs are motivated by carried interest, not management fees. Carry is zero owing to reasons captured in the articles and comments. What does it say about a VC sticking around for management fees in the face of the poor performance and no carry? Read up on clawbacks, performance guarantees, penalties.
We know Mirapoint well and invested in it with confidence through Worldview since 1998. Events there played no small role leading to our losing confidence in the partnership. The gap between the new management teamās results and promises is always widening, their credibility with us is low and decreasing, and their need for financing explains their support of the partner on their board. We arenāt surprised by these self-serving agendas.
Barring significant changes including personnel LPs will not ante up for additional investments and management fees. With those changes better returns are possible and with better returns Worldview V becomes probable in a few years.
It is quite distrubing to see that people would report factually incorrect information. Get your facts straight before you write anything!!!
Bashing people's reputation is a big NO NO. What is being perceived is arrogance is not a crime. What is a crime is when someone is being unethical.
In this case, people slandering a person's good reputation is a crime.
My personal dealings with Orsak has been very solid and he's a very ethical man in a world where many people are not.
WDMitch: You are right that Worldview isn't literally closing its doors. But if the firm can't raise a new fund, or decide not to raise one, it is pretty much through in terms of making investments into brand new companies, and thus the jargon "closing doors" slipped into my post -- there's an understanding of what that means in the venture industry, but I should have been clearer nonetheless. I updated my post clearly (in bold) about this before your comment.
It is disappointing some are accusing the journalists now for reporting "sensational", "factually incorrect information." The journalists did a good job in correcting a minor glitch quickly and reporting facts, not agendas. Who is disputing the following facts they reported?
After several months of trying to raise a fund Worldview pulled it. General partners, principals and other employees left the firm over the last two years. Mike Orsak's role in the firm changed last winter. His own statements and admissions to the press confirm he doesn't support the firm's growth and success and did not cooperate in raising a new fund. Worldview III and IV are very much underwater and not likely to see air. Media professionals witnessed partners yelling and screaming at one another.
What does this say? Big changes needed for investors in current funds to invest remaining funds, pay management fees, and support partner paychecks and lifestyles.
Some commended Worldview partners they worked with. Credit where credit due. Why are a few getting worked up, accusing the media of false reporting to show support for someone who was central to the current mess? support him without accusing the world of bias and slander.
I find your reporting of David Spreng comment quite annoying. As an unfortunate LP of their 4th fund, I am frankly sick of getting repeated quarterly updates from Crescendo stating things are turning the corner but nothing materializes in the following quarter. All the promises of the prior quarter disappears the next quarter; instead, they are replaced by a new batch of upbeat possibilities. These promises certainly causes me to question Spreng's ethics. Bottom line, since the fund's final close in March 2000, there has been only one positive exit with very trivial amt of return, and the GP that did that investment is no longer with them. Again, I dont know what he means by "doing well" - perhaps he himself is doing well as the ex-GPs that I spoke with expressed deep displeasures with division of economics at Crescendo.
Thanks, finally, for providing some specifics (only one positive exit since March 2000). At least now we can take this to other side and ask them about it.
Does anyone know what role John Boyle played in Worldview's demise and what he is doing now?
Having working with Worldview and specifically Mike Orsak in instances involving both troubled companies and successful ones, I saw nothing whatsoever that would support the negative comments on Worldview and Mike. What I saw was calm, logical, supportive and realistic given each circumstance.
I too worked with Worldview and Mike for several years, and would like to chime in. Unlike some others here I don't depend on Mike or Worldview for business and have no need to sing their song.
Mike and I extracted maximum value from troubled situations and shared some with management that cooperated compliantly. This process always made Mike a hero to management and consultants (and they sing his song) and for a while his partners and LPs. Employees and other investors in those companies were left by the wayside.
The tech collapse created a few of those difficult situations. Most however were created or worsened by Mike's involvement. We parted ways over the diving catches, strikeouts, and differences in opinion over the ethics and morality of our actions.
Worldview's LPs finally woke up. Their decision to not invest is unambiguous about Worldview and Mike.
C*O, what can you share about the financial returns of those deals you worked on while with Worldview?
I don't know if others here understand that of 34 companies invested from Worldview IV, 19 are alive but most living dead. 5 died. 10 were acquired but here's the kicker, only 3 for (little) more than the total money that went in.
Explains why investors said more than "Ouch!"
In response to Jane's comment, how large was your survey sample size? As a former exec at Cosine, I thought Spreng was far from knowledgeable and was slow to make mgmt changes. In fact, his lack of ability to distinguish facts from Hamilton's BS caused us to make several bad decisions. I hold him partially at fault for Cosine's demise.
I do not have insight into the Worldview LP dynamics. They have to live and die by results as we all do in this competitive industry. We have a series A investment from Worldview. I must say they have been very supportive of the company. We have a great board member from World View - who is one among the smartest people I have ever met. All of the other Worldview partners including James Wei have always seemed upstanding and smart. I will not say much more, lest it sound arising from a self serving agenda.
Some facts--also on Thomson Finl, PE Weekly, Venture Economics, etc.--to cut to the chase in this:
James Wei: NVidia, Broadcom and several other hits. Colin Savage and Tim Weingarten: FineGround, IntruVert, and others that sold for more than they raised.Not great but ok.
Mike Orsak: Fifteen+ years experience as a venture investor. Name one company he invested in that has lived ten years. Seven years? Five? The answer is: None. Name one success. None. Consider now the busts: Snowball, MetaTools (which became MetaCreations and now Viewpoint), Cosine,numerous others including acquisitions sold for less than money in. With his Midas Touch entrepreneurs don't need competitors and investors tech recessions to kill them. Ergo Worldview's predicament.
Last year Orsak said he was taking on a reduced role (see PE Weekly and VentureAlert). It disturbs he is still on the website as a GP and on board of companies placing them at risk.
Credit the journalists and their professionalism for picking up on this.
Ask Spreng how he expects to raise a new fund after existing LP Starling sued Crescendo for gross negligence and mis-representation?
Turns out the Mirapoint founders were right afterall. Someone out to write a book about this entitled, "How to ruin a perfectly good startup without even trying"
"While I can't speak to the relationship between the partners at Worldview, I can speak for one of the three portfolio companies whose boards Mike Orsak serves on, and over the time I've been at Mirapoint, he has always been supportive of the management team's efforts to work to grow the company, to make necessary strategic investments and he was always willing to help out whenever it was required."
How long before you guys remove Worldview from your website's investor info page? I'll start the stopwatch now ... GO!