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Is Bay Partners falling apart? Maybe, maybe not

There is a story by Private Equity Week today that says Bay Partners, the Silicon Valley venture capital firm that has invested in companies like Riya, Wallop and Xactly, has lost half its six partners.

It says the firm's investors, the "limited partners," or large institutions and universities which provide the firm with its money, are taking a "wait-and-see" approach to the developments. The story suggests investors may pull their money.

However, the story does not quote any LPs, so we aren't able to confirm this. In fact, a few weeks ago we'd asked one of the partners who remains about rumors of the departing partners. He said everything was fine. One source close to the firm told us last night that the departing partners were under-performers, and that is why they left -- it is the brutal reality of venture capital. In which case, limited partners may support these measures.

So perhaps the LPs are fine with this. We just don't know. Nothing confirmed yet. Bay's 2001 vintage fund, which it began investing after the Internet bubble burst, is in the red, but it still is holding several investments on its books, and it is too early to tell how it will do. And the firm's appointed leader is still in place. So it may have had only one, or two strikes so far... stay tuned.

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Very interesting. Not surprising Neal is in denial about Noble's exit.
I was in senior management and worked with Neal Dempsey from Bay and Mike Orsak from Worldview. Striking similarities in how companies were endangered by their capricious, manipulative actions. Companies poised for success found themselves in a hole; those already in a hole found it deepening.

A welcome change: LPs are meeting directly with significant common shareholders of portfolio companies (entrepreneurs, CEOs, management) and the VC partnership every six or twelve months. They gain first-hand knowledge of partnership dynamics and the GPs performance and relationship with portfolio companies and management. Closer scrutiny of financial and professional performance.

Kwoods on August 9, 2006 11:58 AM
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Hey folks, I'm thinking seriously of removing comments that attack people with words like "capricious" and "manipulative," in particular when they have no backing. Comments are so much more powerful, and constructive, if they are rooted in fact.

I'm all about us having a good discussion here, if it informs entrepreneurs and VCs about what practices or strategies are good and bad, but when the discussion degenerates into personal vendettas against people, it becomes pretty useless chatter. One or two facts emerged from the comments on the earlier post about WorldView: http://www.siliconbeat.com/entries/2006/07/26/vc_firm_worldview_technology_partners_closes_shop_the_three_strikes_rule.html , but the personal junk made it almost impossible for people to weed out.

Thanks. Let's make this a great site for discussion!

Matt Marshall on August 9, 2006 12:10 PM
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I worked at NetBoost, a Bay Partners-funded company. It was a lucky profit for Bay as company would have gone under if Intel hadn't acquired us during the bubble. My colleagues had a negative experience for factual reasons hard to explain quickly. The usual tricks found in many other situations too: VC recaps, forced financings on coercive terms, washing out other shareholders, acceleration and guaranteed payouts for select executives and everyone else gets pennies, more. Some VCs do this more than others and it might seem they are being picked on when this is discussed.

Mojo on August 9, 2006 12:45 PM
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Succession at venture firms is seldom successful. Sequoia and KP seemed to have managed well one transition where IVP, Asset Mgt, Weiss,Peck&Greer failed.

Vanguard Ventures has a storied history. The founder Mr Gill retired. Poor IRRs, difficulty raising their next fund aside (they've been at it for over a year now) makes it likely they won't make it.

There's a story there about VCs unable to practice what they expect of their portfolio companies.

JB on August 9, 2006 5:15 PM
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Kinda ironic that you are asking people to refrain from making personal comments; after all it was you sometime ago that blogged the Joanna Rees story sometime ago while making pointed remarks about "the need to know such information" for investors and entrepreneurs alike, wasn't it :-) ?
While I agree with you on the point that people should generally refrain from making personal attacks, one would say there is also a need to know the general opinion/perception of people that have dealt with these venture folks....

CerealEnterpreneur on August 10, 2006 10:11 AM
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Negative comments about a partner seem adequately balanced by the positive comments about partners from those same firms. Seems sufficient proof SiliconBeat articles and the comments they draw are balanced and fair.

It'll be sad if SiliconBeat becomes a shill for venture firm/partner PR demanding supportive facts and alleging "personal vendetta" if comments are negative and assuming positive comments are fact, don't need supportive data, and (patently evident) self-serving agendas are to be ignored. Here are some voices saying: sunshine is the best disinfectant so please, no changes! SiliconValley (entrepreneurs, employees, limited partners) benefit from the valuable insights SiliconBeat and the comments provide into the world of venture capital

Some Concerned LPs on August 10, 2006 1:01 PM
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Guys, perhaps I wasn't clear.

Criticism is fine, but why not back it up with some real specifics so we can understand what you mean by "capricious" or "malicious"? If these actions endangered companies, can you tell us which companies, and how? I'm trying to say that those facts are much more helpful and constructive than vague blanket character assasination. And I hope you will see a difference between that, and the reporting referred to above about VSP and the Joanna Rees.

Matt Marshall on August 10, 2006 1:19 PM
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Can you find out the impact of lawsuit against Crescendo by its current LP Starling International Management for gross negligence and misrepresentation? It is a fact and the question is will it be strike 4 against the firm for its upcoming fund raise?

AJ on August 10, 2006 1:54 PM
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Matt, prior comments to your articles on Worldview and Bay Partners from us and others contain the details you request: names of some companies endangered by a partner's actions, specific acts involved, outcome. E.g., cram-downs, wash-outs, engineered crises and ousters of founders/executives to force financing and recapitalizations, carve-outs and guaranteed payouts for compliant executives that in any society will be considered a bribe, etc. There are plenty more tricks used and they will emerge over time as more LPs note the effect of these practices and pull back their support to certain firms/partners that seem predisposed to these practices, and entrepreneurs and employees learn more about the track record of the firm/partner. Hopefully SiliconBeat will continue to provide the forum to discuss these though in some cases, as with VSP and maybe some other firms/partners, it might be the court of law.

LPs for over two+ decades we like and continue to support firms where the GPs are partners to us and the startups, through the ups and downs of the economy. We stand by this and earlier comments. We'll not hesitate to pull back from those firms/partners that hurt our returns, screw up companies, and expect management fees to support inadequate, sub-standard performance.

Some Concerned LPs on August 10, 2006 2:14 PM
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Dear "Some Concerned LPs,"

I agree with a lot of that, and trust me, I think there needs to be more sunlight. For example, I've called and emailed Washington state, and Oak Investment, four times each, asking why Washington decided to invest in Oak despite the fact that the firm is the red on its recent funds. Not a single response.

Matt Marshall on August 10, 2006 2:22 PM
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Matt: Reasuring to hear SiliconBeat will continue to provide the forum for comments about the venture world, critical as well as positive.

The clubby VC world is opening up and over time, as public scrutiny increases with good journalism, you'll find LPs loosening up and talking to you. We'll also suggest you speak to the entreprenurs, founding employees/management, and early investors of startups. LPs are beginning to do that and find a high degree of correlation between their comments about GPs and firms and LPs' own observations, experience, and IRRs. Reliable early warning signals, excellent predictors of partner/fund/firm performance, and more valuable if the startups encountered business crises highlighting the GP's code of professional conduct. We wish we performed that background diligence earlier and regularly, as it'd have revealed what we found and know now: partner dysfunctionality at Worldview and the predatory conduct of one partner there that hurt our returns, risked the companies, and endangered the firm.

Some Concerned LPs on August 10, 2006 3:13 PM
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Based on all the input you are getting on VC's, It is probably good idea to start a sort of rating system on each VC firm & partners. This will help entrepreneurs to stay clear of Enron grade of VC's...

RK on August 10, 2006 6:10 PM
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I've been thinking about that.

If anyone out there would like to help me do this (I'm pretty, ahem, short-staffed), shoot me a note!


Matt Marshall on August 10, 2006 6:35 PM
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A JD Powers-like rank-and-grade of the quality of partners and firms. What a good idea! It'll be useful to LPs and entrepreneurs while limiting Enron or Worldcom-like crimes of omission and commission in the venture world.

Shareholders (employees, investors) of Worldview portfolio companies affected by a partner's actions and exploring legal recourse have our strong support. We'll share our information and experience, including the partner's misrepresentations and other breaches of fiduciary duties, with them for justice.

Some Concerned LPs on August 10, 2006 8:13 PM
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Probably this pointer can be of some help to get started.

NagB /at/

Startups.in on August 13, 2006 4:06 PM
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