Finding New Ways to Collaborate –

The collaboration of venture capitalists has been a core value – and a strength – of our industry since its earliest days. Those who pioneered venture capital worked together to expand their market intelligence, stretch precious capital resources and spread the risk of individual investments. But venture financing gained stature as an asset class and capital become more readily available, many in our industry moved away from these practices.

Today, we are hearing of a resurgence of venture capital collaboration both in the area of investment and operations. Anecdotally, firms are doing more syndications to leverage their capital and better manage portfolio risk. The benefits of syndication are no better realized than in the Midwest where the Mid America Healthcare Investors Network has operated for about two years. This group, comprised of venture firms specializing in life sciences, works collaboratively to syndicate Midwest life sciences deals among one another, enhancing funding opportunities for entrepreneurs and return opportunities for limited partners.

The advantages of collaboration are becoming apparent in other ways, as well. VC firms are finding unique opportunities to improve their operations by working together in areas never before considered to be appropriate for joining forces. Just as the industry has benefited from a collective voice on public policy issues, it is now finding opportunities to leverage intellectual capital in the areas of finance, law and even marketing. This phenomenon is reflective of a realization that as the VC industry continues to mature, firm differentiation will be driven by the front-end interaction between partners, entrepreneurs and limiteds rather than back-end operations.

Leveraging Technical Expertise

For more than a year, a group of chief financial officers – now representing 140 NVCA member firms – has been working together regularly on wide-ranging technical accounting issues affecting our industry. Their work has been central to our industry’s efforts to comment vigorously on proposals by the Financial Accounting Standards Board to mandate the expensing of employee stock options and alter the accounting policy for special-purpose entities. The task force also has immersed itself in proposals by the American Institute of CPAs and by the Private Equity Industry Guidelines Group. By pooling their experiences and intellectual resources, the CFO Task Force has strengthened the individual abilities of 460 NVCA member firms, and of our collective industry, to respond effectively to a number of critical issues that go to the heart of the venture capital business.

Fostering Efficient Financings

This past year we have also seen the benefits of collaboration among lawyers practicing in the industry, both as counsels general at venture capital firms and at law firms serving our asset class. Under the leadership of Sarah Reed, general counsel of Charles River Ventures, a “caucus” of legal experts was formed to develop a set of model legal documents to be used by venture capital firms in doing financings. These documents already are in use and have enhanced the efficiency of making portfolio investments and engaging in subsequent financings. There is every reason to conclude that such collaboration will reduce the cost of operation for many firms by eliminating the need to “reinvent the wheel” each time a transaction is entered into. That will benefit GPs, LPs and entrepreneurs alike.

More in Common

While differentiation has become a key element in raising capital and attracting deal flow, we may have more in common than we think – even in the area of marketing. Last month, more than two-dozen of the marketing and communications leaders from NVCA member firms met in Chicago to discuss best practices in firm communications, limited partner relations and portfolio company support. The group shared experiences and techniques in these areas and developed a series of suggestions for specific opportunities for collaboration going forward. Response among participants in the first forum was uniformly positive. Future meetings are expected to focus on public policy issues, branding and media relations.

Time Well Spent

These initiatives are giving us important insight to the needs that we share and resources we can pool to strengthen the businesses of our individual firms. The success of these and other collaborations depend on the energy and commitment of venture capitalists. In my view, it is time well spent. In a business that depends so heavily on relationships, more can be accomplished together than separately. As we have learned from our collaborative efforts in public policy, the more we speak with one voice, the more successful we will be.

Mark Heesen is President of the National Venture Capital Association. He may be reached at mark.heesen@nvca.org.