While many people are wary of air travel following the incidents of Sept. 11, Joseph Tzeng has even more reason to think twice. The founder and managing director of Crystal Internet Ventures, with $240 million under management, was ticketed to travel on United Airlines Flight 93 that Tuesday morning. However, he missed that Newark-to-San Francisco flight-it was hijacked and later crashed in Pennsylvania-by just five minutes. Instead he went to Cleveland, where Crystal has an office and was preparing to close a round of financing. “More than once, we’ve all taken these flights,” he said, referring to the four that were hijacked. “It’s more than a little scary. I feel very, very grateful to be alive.”
These days Tzeng and other top executives of Palo Alto, Calif.-based Crystal exercise some strict travel guidelines: The partners never fly together, they steer clear of American embassies overseas-“we don’t want to become collateral damage,” Tzeng says-and they follow U.S. State Department guidelines on international travel.
A couple months ago, such practices would have seemed utterly impractical, especially for a U.S. firm with operations in Singapore and Taipei. But in the wake of the terrorist attacks, VCs are rethinking everything from their investment strategy to their travel plans. And for some firms, the nature of global investing has changed considerably.
Like many other investors, Crystal is staying away from investment opportunities in the Middle East and India, areas that until recently were viewed as fertile ground for start-ups. Asian-based Acer Technology Ventures had committed 40% of its $260 million Intellectual Property Fund to India before Sept. 11. Now, however, Acer will wait until the situation stabilizes there and will not rush into any deals, lest India-an often-tense neighbor of Pakistan-gets dragged into the conflict, says Bobby Chang, managing director at Acer.
The impact is being felt across firms of all sizes. Softbank Venture Partners, which in May said it would pull out of India and no longer support its $190 million eVentures India fund, is accelerating its retrenchment. The global VC firm recently said it was consolidating its two European funds, Softbank UK and Softbank Europe, into a single $600 million fund. The firm is also giving back up to $250 million of that money to investors and shutting down offices. With the threat of recession becoming more real, Softbank said corporate investors in the fund have asked for their money back to redeploy for their own businesses.
Meanwhile, some U.S. firms are watching their peers struggle overseas and are pulling back or canceling their own expansion plans. “We are not moving as aggressively as we may have planned on international deals, including Israel, which was a major focus for us,” says Bart Schachter, general partner at Blueprint Ventures in San Francisco. “The reason is simply that deal flow couldn’t be better within the old one-hour driving distance’ radius.”
To be sure, not everyone is retrenching. J.P. Morgan Partners, with three non-U.S. regions operating out of Europe, Asia and Latin America views its global strategy as among the most expansive in the venture industry.
With the exception of some isolated difficulties, it is business pretty much as usual, says Mitchell Blutt, executive partner with Morgan. However, it’s important to note that none of its operations are near U.S.-British military activity. “There has been no fundamental change or delay in our strategy as a consequence of (Sept. 11) beyond the initial psychological pause,” Blutt says.
To be sure, terrorism hasn’t been the sole-or even the dominant-factor in foreign retrenchment. Darby Overseas Investments Ltd., an investment firm that focuses solely on Latin America, said that most U.S. firms that expanded into the area over the last several years are now eager to leave. That trend has more to do with the lack of exit opportunities worldwide than any fears associated with international investing.
Whitney & Co. shuttered its Tokyo and Singapore operations and said it would cease all operations outside the U.S. The announcement came after the firm aggressively expanded throughout Asia, investing more than $100 million into Asian start-ups. But in Whitney’s case, the longtime investor has had a rough year all-around, so scaling back overseas isn’t surprising.