Sunday, December 21, 2014
http://www.businessweek.com/stories/2001-09-16/matrix-bets-on-wireless
Matrix Bets on Wireless
September 16, 2001
Since the great tech wreck of 2000, life for most venture capitalists
has been rough. They're making fewer investments, marking down the
value of those they have, and facing headaches raising new cash. Not
Paul J. Ferri, however. In the past 12 months, the managing partner of
Matrix Partners of Waltham, Mass., has invested $101 million in 13
companies, mostly wireless communications startups. And in May, he
raised $1 billion for his latest fund--more than double what he raised
in the 1990s.
Matrix is a magnet for new money because it was one
of the nation's most profitable VC firms through the 1990s, says Steven
Lisson, who tracks venture funds at his Web site, InsiderVC.com. The
best performer among Ferri's three funds returned 20 times its
investors' money from its formation through Dec. 31, 2000, and his worst
seven times the original investment (table). Matrix sold many of its
big winners near the top of the market. For example, it paid 20 cents a
share for optical networking company Sycamore Networks Inc. in 1998 and
sold last year at $107 a share, for a 53,400% gain. Just six companies
out of 60 that Matrix backed--including the only two dot-coms--were
losers. "What's unique about Matrix is that most top firms do have an
occasional weak fund," Lisson says, "but Matrix does not."
GROUND
RULES. The Italian-born Ferri sidestepped the tech meltdown by following
strong, even rigid, investing rules that he has developed over a
30-year career as a venture capitalist. For starters, he steers clear of
fanciful theories--such as the idea that Webvan Group Inc., which filed
for bankruptcy in July, would create a whole new business model for
grocery distribution. Instead, Ferri focuses on technology equipment
companies headed by top engineers able to build products that can
produce revenues within two years. Most are referred by successful
entrepreneurs that Matrix already has funded. Plus, Ferri insists that
Matrix must always be the first-round--and lead--investor in a company
because it gives him more influence on strategy. Another rule: One of
its 11 partners, many of them experienced engineers and executives, must
be on the board.
Now, despite the extensive overcapacity that's
wreaking havoc on telecom startups and giants alike, Ferri is betting
big on wireless technology. He doesn't consider the strategy to be all
that risky, as the wireless business is still growing fast--at a nearly
30% clip, according to Merrill Lynch & Co. "All our startups are
selling into markets where there is still demand for new products,"
Ferri says.
All the same, Matrix's new investments are focused on
one of the most volatile sectors of the tech industry. But Ferri says
he's much happier now than where he was in then 1980s. Back then, he
diversified into tech, retail, and health care. The results were not
spectacular, and the experience left him focused almost exclusively on
tech equipment and software companies.
Winphoria Networks Inc. is
typical of the companies currently being funded by Matrix. The Tewksbury
(Mass.) startup was co-founded by Shamim Naqvi, a former top Lucent
Technologies Inc. engineer. Next year, Naqvi says, Winphoria plans to
release new wireless switching equipment at half the price but four to
five times the capacity of today's switches--making it potentially a
high-priority purchase by battered wireless carriers. "We're not a sexy
company, but it won't be hard for our customers to justify the cost of
buying our product," says Naqvi.
Ferri admits that near-term the
weak economy could prevent many customers from buying the products
Winphoria and others are developing. So he is prepared to wait three or
four years--instead of one or two--to earn a return on his investments.
And he is planning to invest more money in his companies--double or
triple the $8 million to $10 million investments that he typically made
over the past 10 years. "We know we'll never have the returns we had in
the past," says Ferri.
No doubt Ferri's winning streak will be
sorely tested in the next few years. Not only is the tech industry
struggling, he has also got far more to invest than ever before. But
Ferri's disciplined approach may see him through. By Geoffrey Smith in
Boston
©2014 Bloomberg L.P. All Rights Reserved. Made in NYC
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Wednesday, November 12, 2014
The Private Equity Analyst WEEKLY Page 6 of 7 NOVEMBER 12,
MARKET INTELLIGENCE
NVCA Advocates More Confidentiality on Returns By Sree Vidya Bhaktavatsalam
Could it be a coincidence that GPs are getting touchier on the
issue of confidentiality of fund performance data at a time when
private equity returns are plummeting?
The National Venture Capital Association recently distributed
a list of suggestions for GPs to reduce unwanted
disclosure of information included in reports to their LPs,
particularly public pension funds, presumably to spare GPs the
shock of seeing their fund returns posted on a Web site or in a
trade press article.
Many state, municipal and local pension funds have fair
disclosure regulations, which, in the interest of transparency,
may require that the information be made available to the
public. NVCA’s suggestions include entering into confidentiality
agreements with LPs and tailoring the data distributed to
minimize the “harmful effects of subsequent public disclosure.”
Advocates for keeping performance data confidential
argue that the private equity industry relies on imperfect
information about private companies, which can be too
sensitive to reveal to the public. Also, they say that in the
absence of any standardized method of reporting private equity
returns, performance data presented in the form of IRRs can be
inaccurate and misleading.
President Mark Hessen of the NVCA says his concern is
that individuals (reporters, for example, or retirees whose public
pension program is used to invest in private equity funds) may
not be well-versed in the intricacies of performance data and
thus will get a distorted view of overall fund returns by looking
at quarterly reported returns.
‘A quarterly perspective is not representative of the entire
fund,’ he says. “We need to educate the public before we can
throw this information out there.”
Still, some like Michael Smith, director of research at
Atlanta-based consulting firm Hewitt Investment Group, believe
that transparency is the only way for prospective
Sources of private equity fund performance data
Venture Economics, Newark, N.J.: A division of
Thomson Financial. Provides industry wide private
equity performance benchmarks. Reach the firm at 973-
622-3100.
Cambridge Associates, Boston: Provides private
equity performance benchmarks and consulting services.
Reach the firm at 617-457-7500.
InsiderVC.com. Austin, Texas: Provides performance
data on individual venture capital firms. Its Web
site is at http://www.insidervc.com.
investors to separate “the wheat from the chaff.
“This is a market that two years ago did not need new
quality institutional investors,” he says. “Clearly that is different
now-if (VCs) want to broaden their appeal, the way to do it is by
making it more transparent.”
NVCA’s suggestions come at a time when GPs are still
smarting from California Public Employees’ Retirement
System’s decision earlier this year to post fund performance
data on its website. Calpers posted the IRRs of the 163
partnerships it had invested in since 1990, and had downgraded
some firms as “not performing up to expectations.” (See Private
Equity Analyst Weekly, June 4, page 5.) A few months later,
Calpers yanked the returns data from its Web site, after receiving
complaints from its GPs.
So, how can prospective investors gain access to the
performance data of venture capital and private equity firms?
Some public pension funds do make their quarterly performance
reports available to the public as a matter of course. Others,
like Florida State Board of Administration, make information
available, if the public requests it. And then there are quarterly
benchmark numbers for the whole industry released by Venture
Economics and Cambridge Associates. (See table below.)
One source of fund performance data is the Web site
InsiderVC.com, whose founder, Stephen Lisson, has received
both brickbats and bouquets from venture capitalists for his
analysis of performance data and his provocative commentary.
His Web site provides performance data of hundreds of venture
capital and private equity funds including those managed by
New Enterprise Associates and Matrix Partners.
In an interview, Mr. Lisson declined to reveal his sources
of information. “The reason people share information with us is
that we are very discreet, and we are very careful about who
sees our information.” Indeed, Mr. Lisson carefully screens
applicants before allowing them to subscribe to the performance
data contained in his Web site.
Mr. Lisson stresses that his data is not intended for the general
public. “My data is for insiders to improve their own game. VCs get to
benchmark themselves against their peers-it’s a confidence level
thing,” Mr. Lisson says. Mr. Lisson acknowledges that the VC
community could benefit from a healthy dose of transparency and
humility. “Sunlight is the best disinfectant,” he says. But he questions
the value of making public IRRs and interim valuations, which by
nature are based on subjective evaluations. “There should be less
focus on returns and interim valuations, and more focus on building
world class companies.”
Copyright 2014 Asset Alternatives, Wellesley, Mass.
TECHNOLOGY; Venture Capital Financing Is Further Sapped by Events
By MATT RICHTEL
SAN FRANCISCO, Sept. 25—
Venture capital investing, the high-risk financing
of early-stage companies that has been markedly curtailed in the last
year, is being further challenged in light of the recent terrorist
attacks and growing signs of recession, those investors say.
The venture capitalists assert that the slowing of
the economy, coupled with an uncertainty about the public markets, is
affecting all facets of their industry, including their ability to raise
new funds, their decisions about which and how many companies to invest
in, and their expectations about when their existing investments will
become profitable.
Putting a fine point on the concern, the National
Venture Capital Association issued a statement today saying the industry
''is preparing for an extremely difficult economic environment'' in the
next 12 to 18 months.
At the heart of the issue is a question about how
venture capitalists can expect to sell the investments they make.
Typically they take their companies public, or sell them outright. But
those so-called ''exit strategies'' are sharply limited, said Mark
Heesen, president of the National Venture Capital Association, a trade
group based in Arlington, Va., with 400 member firms.
''We were already in tough times,'' Mr. Heesen said.
''What Sept. 11 did was make the likelihood of the I.P.O. market
opening in the next four quarters pretty unlikely. A lot of V.C.'s are
saying it might not open until 2003,'' using the abbreviation for
venture capitalists.
The investors say that as a result, they must put
more money into companies in which they are already invested, making
sure to keep them afloat until an exit strategy emerges. The numbers on
investments made in new companies bear that out: this year, venture
capitalists will invest about $50 billion in start-up companies, Mr.
Heesen said, compared with $105 billion last year.
Still, venture capitalists point out that this
market appears to be so difficult because this year is being compared
with the two years previous, which were anomalies, with exorbitant
returns being driven by the dot-com boom, and the expansion of the
public markets.
Steve N. Lisson, editor and publisher of
InsiderVC.com, said recent events were reminiscent of the time around
the gulf war, when the industry had its last downturn. At that time, the
ability to attract capital to invest in start-ups ''fell off
dramatically,'' but he said the industry bounced back within several
years to have the ''best period in its history.''
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