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June 15, 2006
The Re-Up Myth and Venture Investing
There is some data floating around out there that has people thinking that LPs (the people who invest in venture funds) are becoming tougher on their investees. The term of art is refusing to "re-up" -- meaning: not investing more money in a fund -- when performance isn't there.Specifically, Collier Capital reports the following:
Over the last three Barometers the proportion of investors who have refused to 're-up' in their GPs' follow-on funds has grown steadily: from 45% last summer to almost two thirds now.I have no doubt that this is true, but I think there is a specific cause at work. We are in 2006, which is six years after the worst-timed bubble funds were launched, back in 2000, and many of those doomed funds are coming back now trying to raise another fund. Not surprisingly, a higher than normal proportion of bubble babies are being told to piss off -- which is not the same thing as saying that LPs are newly more discerning, in general, in deciding whether to re-up or not.
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The singular of data is anecdote:
"Palo Alto's Focus Ventures has closed its third fund with $250 million (here is their announcement) -- nearly half the size of the firm's previous $465 million fund.
[...]
Focus partner Steve Bird said the later-stage investors are having trouble investing their money, which is why Focus has taken seven years to invest the fund it raised in 1999. It still has cash left over from that fund to make new investments, he said. And while that fund still hasn't made money, he expects it will in the future, he told us."
http://www.siliconbeat.com/entries/2006/04/19/midweek_wrapup_in_silicon_valley_clickfraud_ciscos_offensive_more.html