The venture industry needs to get its story straight with regard to disclosure. If it’s really a bad thing, then everyone should stand shoulder to shoulder to fight it. It serves no one to flip-flop or say it’s OK as long as underlying valuations aren’t released.
On the flip-flip front, look no further than Sequoia. First it allowed the University of Michigan to put $8 million into its ultra-exclusive Fund XI, then it handed the money back and asked the university to sell its positions in all of its funds (see cover story, page 30). At the same time, we’re hearing Sequoia let in the University of California (which is being sued to disclose returns). Partner Mike Moritz sent a long letter to the University of Michigan (see page 35), but all of the factors that he points to were evident about a year ago when this whole disclosure issue erupted. Did the partners at Sequoia have an epiphany? Or was “disclosure” just a convenient excuse to kick out the university to make room for another LP?
As for the “as-long-as-you-don’t-disclose-underlying-valuations” argument, that just doesn’t hold water. If you’re against disclosure, you should fight it 100 percent. By allowing LPs to reveal IRRs, you stand a greater risk of them releasing other sensitive information. There has already been at least one case where a public LP gave a third party too much information only to have second thoughts. That LP is now negotiating to prevent the release of the info, which includes LP agreements with details about management fees and the like.
This industry got its start with money from wealthy families and trusts, not gargantuan pension funds. If you have a history of healthy returns, you won’t have any trouble raising a new fund without taking a dime from public LPs. Why is there such great willingness to put your fund and the interests of your other LPs at risk just to include a public LP? Is it fear that you’ll need the public funds somewhere down the line and don’t want to burn any bridges? I don’t see the logic in that. If you’ve got above-average returns, the public funds will forgive and forget. Money talks.
So what are you afraid of?