The question of whether the venture model is broken just won’t go away. Yet another longtime firm—21-year-old Northwest Venture Associates—has decided not to raise a new fund.
Founder Tom Simpson says he’ll continue to make angel investments around Spokane, Wash., but he’ll lay off traditional VC investments because he believes valuations are too high, the exit market is too slow and many of the companies seeking funding are pursuing “evolutionary” ideas that likely wouldn’t get funded if there weren’t so much money available.
Venerable Sevin Rosen Funds cited similar reasons for halting fund-raising for its 10th fund in October 2006.
Simpson says his near-term plans are to manage the investments in NWVA’s current fund, a $135 million vehicle raised in 2000, and spend “a little time” with an angel fund he founded that is based out of NWVA’s office in Spokane. “Over the past 10 years, the Spokane area has really come alive, attracting a lot of people from the Bay Area and other parts of the world,” he says. “There is an increasing level of entrepreneurial activity.”
Long term, Simpson says he is keeping all his options open.
Editor Lawrence Aragon asked Simpson six quick questions:
Is the venture model broken?
What I think is broken about the venture capital model is that it doesn’t currently align the long-term gestation periods of early stage investments with the incentives and structure of a garden variety limited partnership agreement.
Q. What could be done to improve the model?
A. If the limited partnership agreement were structured to embrace dividend income as an acceptable form of distribution, I believe you would find venture fund managers taking a longer –term view in managing their portfolio investments and not rushing toward the gate for an IPO or M&A event, which may or may not be on the near term horizon.
Q. Is there anything else that could be done to improve the model?
You could structure limited partnership agreements so that they are somewhat akin to an evergreen fund by providing a mechanism for redemptions and rollovers at the time of a distribution. LPs would have a choice to roll money over or take it out, which would then alleviate the need and short-term pressure to go out on a regular basis to raise a fund.
Just for kicks
In high school, were you a nerd, jock or socializer?
A. I had balanced relationships in all three groups. I took a cheerleader to the prom, knew some of the guys on the football team and knew all the guys who smoked cigarettes across the street.
Q. Best ever birthday gift?
Actually, I just had a birthday, and my daugher, who is going off to college, gave me a decal for my car that says, “Proud Dad, University of Washington.”
Q. Blackberry or iPhone?
Neither. I don’t want to be that connected.