More VCs Than Ever
By Melanie Warner, October 4, 1999
Copyright =C2=A9 1999 Fortune Inc.
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Is it just me or does everyone want to be a VC these days?
Seems that every other week brings fresh news that someone
somewhere is raising a new venture capital fund, cobbling
together cash with the intention of throwing it at the legions of eager
startups the Valley is spawning in ever greater numbers.
There are corporate investors. Panasonic,
Oracle, Lucent, the French retailer Louis Vutton
Moet Hennessey and Noika, to name just a few, have
all recently begun committing millions to startups.
There are angel investors, whose ranks have deepened
thanks to the ongoing and bountiful creation of
wealth in the Valley. There are people who are who
aren't quite giving up their day jobs but are starting
to act more and more like VC's - the Valley's
lawyers, consultants and investment bankers. There
are even athletes getting into the action - former San
Francisco 49ers Ronnie Lott and Harris Barton has
set up a $40 million fund of fund which is comprised
of 99 professional athletes and represents a who's
who in professional sports (folks like Wayne Gretsky
and Joe Montana). He's calling it Champion Ventures
and has managed to invest in most of the Valley's
top VC firms. But the icing on the cake came last
week when the CIA announced a venture fund in the
rather odd sum of $28.5 million. When the
government gets involved, isn't it time to ask
yourself, what's going on?
It would be easy to explain the sudden siren appeal of
being a VC by pointing to the fact that there's a lot
of money in it these days. Annualized returns on top
tier VC funds are in the triple digits. Anything like a
mere 40%, which used to be a rather respectable
venture return, is simply mediocre. If you've got a
real live Internet hit on your hands, it's not unheard
of for the VC's to individually make $25 million.
Compare that to the, at most, several million a year a
senior law or consulting partner pulls down. When
was it exactly that law and consulting used to be
lucrative career choices?
So of course it's about the money. But some people
like to say it's for other reasons too. Like most
corporate investors, Andersen Consulting, which has
been placing bets on startups here and there for
several years but has sped things up in the past six
months, says that all their investments represent
strategic interests for the firm. Yet given the rather
wide scope of what Andersen consultants do, that
charter is pretty open. Managing partner Jack Wilson
says that Andersen has made about 12 investments,
each averaging around $3 million. Some of these are
customer relationship management companies like
Blue Martini and Calico Commerce, whose products
can be adopted by the firm's existing Fortune 500
clients. Others are of-the-moment plays in
ecommerce, like Snowdrops.com, a hopeful in the
online beauty wars, and ChemConnect, an
ecommerce exchange for the chemicals and plastics
industry.
For Ben Quinones, a young partner in the San
Francisco office of law firm Crosby, Heafey, Roche
& May, it was about helping his startup clients get
funding. Last year he noticed that despite all the
venture money in the Valley, there were lots of
startups having trouble raising seed rounds of less
than $1 million. He decided to form a network of the
firm's partners nationwide that would invest
personally in deals he brought to them. "The idea
that there's so much money chasing too few deals is
such a lie because there's a lot of little companies that
want to raise $500,000 and can't get funded, because
all the VC's want to put in no less than $3 million,"
says Quinones. Lots of the firm's partners thought
this was a great way to spend some of the money
they've socked away over the years. So did many of
their friends and golfing buddies. Quinones has about
100 people in his database and hopes to have 400. In
the past six months he's done eight deals. Among
them are Imagelock, which has an Internet tracking
product, and Zforce, which makes software for
designing systems on a chip, both of which he says
are "great, great companies that I'm sure one day will
be worth billions of dollars."
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