Most VCs talked about kicking disclosure-friendly LPs out of their funds last year, but Sequoia Capital was the only firm to actually do it, and resident tough guy Mike Moritz wrote the eviction notice. “This is the letter that we had long hoped we would not need to write,” Moritz wrote in a letter to Erik Lundberg, chief investment officer of the University of Michigan. “Yet I am afraid we have concluded with great regret that we must remove the University of Michigan from Sequoia Capital XI and would request that you use your best efforts to sell all of the University’s positions in other Sequoia Capital Partnerships.”
Moritz wrote that he understood that the university had to comply with the state’s freedom of information law, but “we also have the right to protect our other clients, our portfolio companies and ourselves from the various damages that can result from the dissemination of information we consider highly confidential.”
After booting the University of Michigan from Sequoia Capital XI, Sequoia gave the heave-ho to the University of California, which lost a legal battle to keep its private equity returns private.
Aamer Latif Spooked VCs
If venture capitalists were feeling a little more paranoid than usual in 2003, it may have been due to Aamer Latif. The founder of San Jose, Calif.-based Nishan Systems entered the spotlight when he filed suit against ComVentures and Lightspeed Venture Partners, then took out a full-page ad in the San Jose Mercury News to plead his case.
Latif’s suit alleges the two VC firms and others cheated him and common shareholders out of proceeds from the sale of Nishan to McData Corp. The suit charges that the defendants engaged in fraudulent vote buying to garner votes needed to approve McData’s $90 million acquisition and that the defendants engineered a greater share of the deal’s proceeds at the expense of employees.
ComVentures and Lightspeed say Latif’s allegations are “baseless.”
Other VCs are watching the case closely. If Latif wins, they could be flooded with similar complaints.
Best known for making bets on Internet startups like Ask Jeeves, Garrett Gruener was the only VC to roll the dice on the recall of California Gov. Gray Davis. The Democrat put up $1 million of his own money, but he couldn’t overcome the Republican juggernaut that was Arnold “the Governator” Schwarzenegger.
Gruener, a founder and general partner at Alta Partners, took the election seriously, talking intelligently about the economy, education and the environment. But in a campaign rife with porn stars, former child actors and other weirdos, playing it straight was probably his downfall.
Gruener garnered little media attention – resorting to running his own Web cast during the largest debate among candidates – and handed his endorsement to another losing candidate a month before the election.
Back at his desk now, on the 40th floor of San Francisco’s Embarcadero Center, Gruener has shunned the spotlight since the election, quietly going back to work. He sits on the board of a local nanotech company and continues to search for new investments in software and other information technology companies.
Three years after a scandal rocked Connecticut’s pension system, the state moved to restore confidence in its private equity investment arm by naming David Scopelliti to head the unit. The appointment was praised by private equity investors, who cited Scopelliti’s private equity and banking background as reason to have confidence in the Constitution State’s private equity endeavors once again.
Scopelliti served with both U.S. Business Exchange and Student Transportation of America. He was also director of leveraged lending with CIBC World Markets.
While Scopelliti sits in his new office, Connecticut’s former State Treasurer, Paul Silvester, sits in prison after being convicted of charges that he awarded management of the state’s $20 billion pension fund in exchange for money, campaign contributions and jobs. Connecticut’s pension system has approximately $18.5 billion in assets with 11% allocated to private equity.
State Treasurer Denise Nappier stopped new private equity investments in 2000 after the departure of the investment officer handling private equity investments. Considering the high risks and recent scandalous history of the state’s investment practices, Nappier thought it was best not to appoint someone new right away.
– Matthew Sheahan
And the winner of this year’s popularity contest? Silicon Valley’s own Reid Hoffman may be too busy shaking hands to come up to the podium and accept this award. He’s got 84 Friendsters to keep up with, 55 more in his tribe at Tribe.net, plus the staff he manages as head of LinkedIn.com.
Hoffman, former executive VP of PayPal, was all over the news in 2003 because of his extensive ties to the Internet craze that caught the fancy of VCs – social networking, the online equivalent of playing six degrees of separation. He was one of Friendster’s seed investors and is an investor and chief executive of LinkedIn. Together, Friendster and LinkedIn have pulled in about $20 million in venture backing, most of it last fall.
In a related move, Hoffman transformed Mena and Ben Trotts’s Movable Type blogging software from a homespun project into a bona fide startup, with equity and a business development manager and all.
It seems everyone wants to be Hoffman’s friend these days. Unfortunately, all that cyber handshaking leaves little time for long walks on the beach.
– Carolina Braunschweig
For all of his efforts to develop venture capitalism in China, a Chinese industry group named Lip-Bu Tan “Venture Capitalist of the Year” for 2003. The founder and CEO of Walden International, Lip-Bu is at the forefront of Asian investment
He spearheaded Walden’s investment in United Platform Technologies, a communications equipment builder based in China. Overall, Walden made a dozen-plus new investments and another half dozen follow-on rounds in its signature areas of investing: China, semiconductors, and communications. The firm also saw one of its portfolio companies go public – Altek, a Taiwanese builder of digital cameras.
But it wasn’t a year without some bumps in the road. Walden received its biggest media coverage for cutting the size of one of its largest funds, PacVen V. It trimmed the vintage 2001 fund a second time to $600 million from its original size of more than $900 million.
The firm also made headlines when it dropped its life sciences coverage along with several staff members.
Still, Walden is well positioned to take advantage of growth in Asia, with 10 different funds focused on the market.
– Jerry Borrell
Les Vadasz and John Miner
Intel Capital experienced its first changing of the guard in 2003. Les Vadasz, who founded the venture unit in 1991 and built it into the most active VC in the world, retired as its president.
John Miner, whom Vadasz groomed as his successor, took over as president in June. He joined Intel in 1983 and was elected Intel corporate vice president in 1996. Over the years, he has managed Intel’s communications products, server products, and desktop motherboard and PC building blocks businesses.
He oversees a portfolio of more than 475 technology companies with an approximate value of $870 million and three funds: the $500 million Intel Communications Fund, the $253 million Intel 64 Fund and the recently formed $200 million Digital Home Fund.
Intel Capital is one of the most influential venture firms around because it is part of Intel, the world’s largest chipmaker. Intel has the ability to speed the adoption of technology, as it has done with Wi-Fi, which finally gathered a head of steam last year. Under Vadasz, Intel Capital invested in about a dozen Wi-Fi companies, from chipmakers to service providers.
The changing of the guard didn’t slow Intel Capital’s investment pace. In fact, it picked up. The venture unit did more than 125 deals last year, compared to 100 the previous year.
– Lawrence Aragon
Robert Casey Jr.
In a battle waged in courtrooms, on the editorial pages of newspapers across the state and on the floor of the state legislature, Bob Casey proved his willingness to engage in bare-knuckle political fisticuffs without relent. The Pennsylvania auditor general just may be helping set precedent for disclosure among state elected leaders and pension fund boards of directors.
He is currently locked in a legal battle to conduct a special performance audit on the Pennsylvania State Employees’ Retirement System (SERS) and the Pennsylvania Public School Employees’ Retirement System (PSERS). The pension funds contend that Casey lacks the authority to conduct such an audit and that the audit would be costly to the taxpayers. But in late November, the Pennsylvania Commonwealth Court turned down the pension funds’ attempt to have the suit thrown out of court.
While political opponents paint the Democrat as a purely opportunistic politician priming his run for the office of State Treasurer, Casey has won the battle of public opinion in Pennsylvania. The editorial pages of most newspapers have taken his side, and the state legislature passed a proclamation in support of his position in July.
This fall, a State Senator quickly withdrew a proposed curb on the disclosure of state pension investment data after Casey’s public denunciation.
– Matthew Sheahan
If VCs gave a “most hated” award for 2003, that distinction would probably go to Judge James Richman of Alameda County Superior Court in Silicon Valley. The University of California tried to keep its private equity returns private, but Richman ruled in favor of a newspaper’s request for public disclosure, and the State Supreme Court supported his ruling. …
Legendary VC John Doerr had a busy year, even by his standards. He was named as co-defendant in class action suit against Martha Stewart Omnimedia, became chief evangelist for social networking software and watched Segway (one of his personal investments) struggle to avoid becoming the next Edsel. …
Junkyard dog Eliot Spitzer was all over the news, mostly for going after mutual funds. He hasn’t gone after the private equity industry, but a recent move toward internal VC market regulation certainly smells like fear of the NY AG.
– Dan Primack