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Founder liquidity becomes more common December 17, 2006

Posted by jeremyliew in Consumer internet, Venture Capital.

Allan Leinwand did an interesting guest column on GigaOm yesterday about VC’s providing some founder liquidity at early rounds. This picks up on a Venturebeat story from Friday about a related topic, “FF” class stock that is deliberately designed to allow for partial founder liquidity. As Allan points out, this is also being driven by many consumer internet companies simply requiring less money to build – a trend that has been widely discussed.

We’re seeing more of this trend here at Lightspeed, especially with consumer internet companies since they take so little money to start. This has not been the case as much in other sectors. We’ve recently closed on one financing where founder liquidity was a portion of our investment (company had been in business 4 years) and are in the process of closing a second (company has been in buinsess 1 year). In both cases, our goals were (i) to increase our ownership, and (ii) to better align our incentives with the founders, who were then able to focus on building a big company (vs looking for a quick liquidity event). The founders wanted to diversify their risk since their net worths were largely tied up in the fortunes of their company which was private (and illiquid) and still risky. Plus, its expensive to buy a house in San Francisco! Everyone felt like it was a good result.

The challenge, as always, is in finding the right balance. Founder liquidity makes the most sense when the founders have already built something with real value through sweat equity and some seed money (ie its not a powerpoint presentation or a site still in closed beta). With consumer internet the biggest risks are often around consumer adoption as there are so many “good ideas” that “should work”. If a team has taken some of that risk out with real traction, it makes it much easier to contemplate the founders taking some money off the table.

Lightspeed Blog Launch – Why Now? December 14, 2006

Posted by John Vrionis in Uncategorized, Venture Capital.
1 comment so far

Lightspeed Venture Partners launched its blog this month.

What’s that?

Too many VC’s blogging already? Another example of VCs acting like sheep?

From our perspective the answers are clearly, no and no.

Ok. How about maybe and maybe?

The truth is we debated the idea internally and ultimately decided we need to do a better job of two things:

1. Sharing our personal ideas, beliefs and lessons with the community of entrepreneurs we are in the business of serving.

2. Engaging on a consistent basis with entrepreneurs and opening up direct channels of communication.

So here we go.

Stay tuned for regular posts from the various members of Lightspeed. We’ll be doing all the fun blogging things bloggers do such as commenting on news, sharing ideas about sectors we find particularly interesting, and looking to engage with you about ideas you have and how we can help.

How I got my job in Venture December 6, 2006

Posted by jeremyliew in Venture Capital.

I joined Lightspeed on February 28, 2006. Since then a few people have asked me how I got a job in Venture. As with most of my career, it was mostly serendipity. However, as a number of others have recently joined other VC firms to do consumer internet investing, there are a couple of themes that can start to be pulled out. I don’t know how useful these are to someone looking to enter Venture, but for what they are worth, they mostly had:

1. Some experience at a startup (not necessarily in a senior role)
2. Some line management experience with P&L responsibility
3. Senior management experience at large internet companies
4. A lot of “outside facing” experience, whether in business development or corporate development or as CEO or GM of a business unit
5. No active, ongoing search for a job in venture capital.

Why are these important?

#1 and #2 are obvious – when working with growing companies, and often first time CEOs, it’s helpful to know what the challenges are and to be able to provide relevant experience and advice to those CEOs. This can make it easier with one part of a VC’s job, to help portfolio companies be more successful.

#3 is also related to the same goal. They have fresh relationships, both within their old company and with peers in the other big internet companies. It’s all well and good to have a board member “introduce” you to the CEO of a big portal or media company by email, but its actually much more effective to get introduced directly to the real decision maker a couple of levels deeper in the organization, and by someone that the decision maker already has a relationship with.

#4 is to do with a separete issue, deal flow. Deal flow is a function of the size of your network, and if you’re in an outward facing job you naturally have a bigger network than if you’re mostly dealing with the same people inside your company every day.

#5 is a bit wierd though. I think it’s less a function of the people and more a function of this time. There has been a flurry of investing in consumer intenet companies over the last 18-24 months, and this has created a bit of a time shortage among the most experienced consumer internet VCs. The guys who have done a lot of this are often already on 8 boards – too many to take on any more investments. Some of the people repurposing themselves from other categories are still coming up to speed. So a lot of venture firms elected to bring someone in from the outside to bolster capacity right away. Other firms are still looking to bring someone on board; I know of at least four top tier firms seeking a Principal or Partner to do consumer internet investing. And the natural place to look is to people at some of the big internet companies.

I wasn’t looking for a new job when I was contacted by a B-school classmate. I think that the same is true of many of the others who have joined recently. But being a Venture Capitalist is a great job, and if you get the chance, you do tend to pay attention. Right now, the window to join the industry is open for people with consumer internet experience, but it may be closed again soon. It’s a career more than a job, and firms are small, so if you turn down an opportunity today, it could be a full 5 year cycle before another opportunity presents itself. So I’m in!

The net of it is to be realistic about your prospects of joining in this cycle. If you fit criteria 1-4 above, you’ve got a shot. Tell people who are connected and that you know well, so that they might suggest you to a firm or headhunter doing a search. But don’t put yourself out there too much – note factor #5. If you don’t fit those criteria, maybe you should think about positioning yourself for the next cycle, and make sure that next time around you will fit the profile of #1-4.

Q3 VC cleantech deals total nearly $1B in N. America December 5, 2006

Posted by Andrew Chung in Cleantech.
1 comment so far

The Cleantech Venture Network this week unveiled its Q3 cleantech VC investment results. Total equity capital invested in North America reached $934M, representing a 11% increase from the $843M from Q2 and capturing 14.3% of the $6.5B invested in VC deals across all sectors. However, some observations behind the lofty numbers:

* Fewer deals are getting done, while average deal sizes continue to rise. Only 47 deals were done in Q3, compared to 61 in Q2 and 69 in Q3 last year. Nearly all of the capital ($924M) went into later stage deals, and average deal size rose sharply to $19.9M from $13.8M in Q2. Cilion (ethanol), Altra (ethanol/biodiesel), Ion America (fuel cell), Renewable Energy Group (biodiesel), and Newmarket (recycling of computer equipment) led the pack, representing 61.3% of the total investment in cleantech and commanding an average deal size of $115M.

* Number of investors participating in these deals has cooled off somewhat. In Q3, there were 85 investor groups participating in a transaction, compared to 109 in Q3 of last year. New cleantech investors totaled 3, compared to 36 from the same period last year. Both metrics have declined steadily since last year. Khosla continues to lead the field with 4 investments during Q3.

* Cleantech exits were steady during the quarter, but no home runs in the pack. The 5 largest M&A transactions averaged $118.7M per deal. Energy-related companies accounted for 24 of the 34 M&A transactions, mostly in the area of energy generation. The 5 largest IPO’s raised an average of $180M, with Valero GP Holdings (oil pipeline systems) reaching a market cap of $935M at IPO. Energy-related IPO’s represented 13 of the 14 exits.

See the full press release here.