So I start my week with Correlation Ventures in London then the Eurostar to Paris that evening (photo in hotel). Travel takes its toll, so I better believe in the funds I am selling (and investing with) and with Correlation I do. Recall this a group who brings heavy quantiative analysis to VC, which has not been done before yet, we believe, holds promise given the industry's inefficiencies. Anybody who has raised venture capital, as I did with Ezoka.com, knows it is a disruptive if not torturous process (Ezoka was pain-free and I used to say the easiest thing I had ever done though my biggest mistake a piece of shit partner. But that was my decision and my responsibility).
US venture firms raised under $15 billion in 2009 or levels not seen since '92 or '93. 2010 will be lower. Some (most) believe this a good thing: early-stage companies better valued and capital efficient; fewer "copy-cat" businesses formed; fewer bad ideas funded (who can forget justballs.com) and, one would expect, fewer failures and less disruption. Or, as we say: the industry right-sizing. The data shows us the great vintages - where investors make a killing - follow poor fundraising years. 1993-1998, for instance; Bill had '97 fund that did net 6X return to limited partners before Metro PCS went public and valued around $23 billion at its peak in '02. This returned the fund again several fold.
The other thing about venture: human bias messes things up. If the VC does not like the entrepreneur, she is unlikely to invest in the plan no matter how good. Follow-on rounds, which the data tells us a bad bet, account for more than half the capital employed. Why? Investors must justify their Board seat and time; she does not want her investment to fail. She likes the founder and so on and so forth. A better strategy: back a different, better company. There is plenty of selection.
Correlation aims to reduce the emotional drag nil by using the hard-facts. Fund investors raise an eyebrow – remove experience and intuition? Implicity, the belief that only the best VC knows Google when Google a business plan. We think the data knows better. And while this may be so, one clever fellow asks: “will this Jumbo fly?”
In photo, I am in Paris and missing Sonnet and the kids. It is a long week ahead and tomorrow meetings then Copenhagen.
