To say that Hummer Winblad Venture Partners has had it tough over the last five years is an understatement. Its current fund, a $428 million vehicle that closed in 2001, has had only a few exits. In fact, it has yet to produce a public company. One portfolio company, Jareva Technologies, sold to Veritas for nearly three times the $22 million in venture backing it had drawn. But Hummer Winblad was just one of seven investors in the deal. Another investment, in Lumapath, which counted Hummer Winblad among its investors in four of its five venture rounds, is now out of business.
The San Francisco-based venture firm famously ran into trouble during the Internet bubble, having invested in such eventual busts as Gazoontite.com, Napster and Pets.com.
Looking back at the firm’s fourth fund, which closed at $318 million in 1999 and funded those investments, founding Partner John Hummer calls it “a complete disaster.”
He adds, “We invested in the poster children” for failure during the dot-com era.
Napster might still cost the firm, as a judge ruled last summer that a raft of music companies-which had already filed their suit against Napster when Hummer Winblad made its $13.5 million investment in the music-sharing service for a 21% stake-could proceed with their suit against it. “I really don’t know what’s happening with the suit,” sighs Hummer, who had joined Napster’s board along with Hank Barry, a Hummer Winblad general partner who served shortly as Napster’s interim CEO. “It’s been five years and I haven’t even been deposed yet.”
Still, despite these concerns, the 16-year-old venture firm is not running out of steam. On the contrary, Hummer Winblad, which returned many times its investors money throughout the 1990s, has not only returned to its original focus of investing exclusively in software, but it is investing aggressively, tightening its ranks, and gearing up for what it hopes will be some fund-returning outcomes.
“We’ll never do anything but software again,” Hummer says.
Back in the Game
Step one of its turnaround plan is to actively make investments for the first time in years. It has committed just $153 million of its current fund to date, leaving it with $275 million in dry powder, Hummer says. He doesn’t expect the firm to raise a new fund for another two years.
“We’d like to do a deal a month,” he notes. So far, the firm is on track. In March it invested $5 million (along with WaldenVC) in Palamida, whose software acts like an antivirus scanner, checking the open-source code that companies are using against a compliance database that the startup also provides.
Hummer Winblad also recently funded a $3.5 million Series A investment in Cittio, a network monitoring and operations software startup. And in December the firm contributed to the $10 million Series A of Akimbi Systems, which is developing virtual infrastructure management software that will be introduced in late summer. Its co-investors include Partech International and Stanford University.
Hummer Winblad made just five first-round investments throughout all of 2004 and just a single Series A in 2003, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of VCJ) and the National Venture Capital Association.
Lean and Mean
The firm’s comeback also involves a bit of belt-tightening. Principal Steven Kishi left the firm in February to join Akimbi, a Hummer Winblad portfolio company. Kishi, who has been a board observer at Mountain View-based Akimbi, is now the company’s vice president of product management. He says that he chose to leave the venture business, because, “it’s a great time to be at a startup.” And he hopes to return to Hummer Winblad once he gains some operating experience.
Four of the six general partners at Hummer Winblad have extensive operating experience, he points out. “I hope to go back there, and right now seems like a good time to get the [outside] experience I need.” Far from calling Kishi’s departure a layoff, Hummer says, “I think that Steve will spend the rest of his career here.”
In the meantime, Hummer Winblad is focusing on making some much-needed exits. Hummer predicts that it will get them from at least two active portfolio companies that aren’t in registration. He points first to human resources application company Employease, of Norcross, Ga. It has raised $50 million over five rounds, two of which Hummer Winblad has led.
“Employease … could go [public] right now,” he says. It has not yet filed because, “We’re not going to rush them out. We’re waiting for the right, top-tier banking team.”
Meanwhile, Omniture, a Web analytics company that helps etailers and other companies manage Web traffic, is “easily going to be a $500 million IPO; it’ll be as big as Google [which had a $1.6 billion IPO],” crows Hummer.
Hummer Winblad, which funded the Orem, Utah-based Omniture to the tune of $14 million in April 2004, competed with Benchmark Capital for its stake in the company, says Hummer. “It was close. [Benchmark GP] Bob Kagle was meeting with them just as I was leaving,” he laughs. “I’m really thankful they went with us. I’m absolutely convinced that this is going to be a fund-returning investment.”
Omniture, formerly known as Mycomputer.com, has raised nearly $28 million in its five-year history. Its other backers, from its $11 million round in 1998, are Network Solutions and VeriSign.
Whether Hummer Winblad-whose first two funds returned 10 times their investors’ money-will return to its glory days remains to be seen. What is clear, however, is that the partnership is “excited about where we are,” says Hummer. The 56-year-old VC says that he’ll be actively investing for at least 10 more years. “We are far from blowing up.”