David Siemer Highlighted in 89.3 KPCC Article that Discusses VC Investing Concerns
May 15, 2012 (Los Angeles, CA) — Pretend, for a moment, that you’re a computer science student at Stanford University. Chances are good that you’ve thought about taking your degree — or even not waiting to get your degree — and starting a technology company.
It’s the new American Dream. It attracts the most talented international students to our major research universities. It’s made the likes of Jerry Yang, Sergey Brin, Larry Page and, more recently, Facebook’s Mark Zuckerberg and Instagram’s Kevin Systrom (both under 30) multi-millionaires if not multi-billionaires nearly overnight.
Technology. The Internet. Mobile. Innovation. Disruption. Entrepreneurship.
These are the things that make America great in the early 21st century. Many of these new businesses are located in California. And they all have one thing in common: They live and die based on the investment decisions of venture capitalists, arguably the most important reallocators of wealth in the global economy.
Venture capital is the rocket fuel that gives scrappy tech startups in Silicon Valley, Los Angeles and San Diego (and other cities outside California) their liftoff velocity. Wanna be a tech tycoon? Then you’d better meet some VCs.
But where do VCs get their billions? For the most part, from foundations, endowments, pension funds and high-net worth individuals. And as the VC business has gotten tougher in the years since the bursting of the dot.com bubble on the late 1990s, those big funders have begun to ask some serious questions about what kind of return they’re getting on risky, long-term investments in the startup economy.
We Have Met the Enemy…And He Is Us
Last week, the Kauffman Foundation published a paper, jointly authored by Diane Mulcahy, Bill Weeks and Harold Bradley, titled “We Have Met the Enemy…And He Is Us: Lessons from Twenty Years of the Kauffman Foundation’s Investments in Venture Capital Funds and The Triumph of Hope over Experience.”
It didn’t mince words. The conclusion was that Kauffman hasn’t just been investing unwisely in VC — it’s been perpetuating a myth that venture capital is a good way for investors to beat the public markets.
The foundation knows what it’s talking about. “We have structured a compensation system that rewards fundraising,” Mulcahy said of dynamic between VCs and funding sources, and of the way VCs are paid.
So VCs aren’t creating the returns that they’re supposed to. And you might see the headlines — “VC Doesn’t Deliver on Its Promises,” “VC Is a Bad Investment” — and conclude that VC has lost its mojo. That VCs, despite their professed expertise, kind of suck at finding the next Facebook.
But Kauffman tells a different story, one of VCs and their funding sources locked into a dysfunctional relationship that’s actually preventing VCs from doing their jobs — and making it likely that funders will keep failing at theirs.
Bottom line: funders have put so much faith and money into VC that they’ve encouraged VCs to excel at…raising money, lots of money, not at finding great companies that will deliver market-beating returns. And the winnowing of VC over the past decade, with far fewer firms chasing many more dollars, has made the situation worse.
Kauffman is uniquely situated to study this issue. The foundation was started by healthcare tycoon Ewing Kauffman with a mission to promote and enable entrepreneurship. Based in Kansas City, Missouri, it’s been around since the mid-1960s and has been very successful, with an endowment of nearly $2 billion.
But more importantly, it’s been investing in VC for 20 years and has amassed an enviable pile of data on this asset class.
A decent chunk of the Kauffman endowment — almost $250 million — is invested in a portfolio that’s riskier than run-of-the-mill stocks and bonds. In order to garner higher returns, it’s invested in such alternative investments as venture capital and private equity funds. The VC component is the focus of the Mulcahy-Weeks-Bradley paper, which draws on Kauffman’s experience investing in innovative, entrepreneurial startups — quite literally putting its money where its mouth is, as Kauffman’s mission is to promote entrepreneurship.
Why It’s Hip to Be Small
However, in an additional negative wrinkle, she and her co-authors discovered that for the Kauffman Foundation, smaller VC funds have performed better than the big boys. “No fund greater than $1 billion has returned more than twice the capital invested, net of fees. The best-performing funds are consistently smaller funds.”
That makes it simple to figure out how to fix the problem of VC in alternative investment portfolios, right? Just concentrate on small funds.
But that’s easier said than done. For starters, smaller funds may not be prepared to deal with large capital inflows — they have to find good startups to invest in, after all, and while they may not put all of a fund to work right away, they don’t necessarily want to sit on their money. So they can have too much in the bank.
They may be able to solve this problem by becoming “followers rather than leaders.” David Siemer of Siemer Ventures in Los Angeles told me that this is how his $35 million fund prefers to operate: joining with other VCs to invest in early-stage companies, taking some of the pressure off, letting others assume the risk of finding the next big thing.
Click here to read the complete article, good money after bad: CalPERS and the crisis in venture capital.
- Ivan Nikkhoo Writes About Raising Growth Capital for SoCalTech
- John Rudolph Speaks on Music Branding and Commerce Panel at Digital Hollywood
- David Siemer Speaks on What It Takes to Get Funded Today Panel at DMW Games
- Ivan Nikkhoo Speaks About Declining PC Sales with CNN
- Dan Chen Speaks on Yale in Hollywood Entertainment Conference Panel
- Siemer & Associates Releases Q1 2013 Siemer Mobile Report
- Dan Chen Speaks on Finance Panel at DMW Music 2013
- Siemer & Associates Advises TapIt! on its Sale to Phunware, Inc.
- Ivan Nikkhoo, Managing Director of Siemer & Associates LLC, Joins Digital Jersey Board of Directors
- David Siemer Honored as Power Player at AlwaysOn’s OnHollywood 2012 Private Dinner
- Siemer & Associates Advisor, John Rudolph, Speaks with Bloomberg TV on Apple’s Streaming Radio Service
- Martin Lichauco to Judge ON3 Nationals Hosted by STAC Silicon Valley
- Ivan Nikkhoo to Speak on Mobile Video Market at OnMobile 2012
- David Siemer Highlighted in 89.3 KPCC Article that Discusses VC Investing Concerns
- Siemer & Associates Sponsors PWC’s Shaking the MoneyTree Report, Hosted by LAVA
- David Siemer Speaks on Valuing and Financing Entertainment Content Panel at Digital Hollywood Spring
- Siemer & Associates LLC Expands Operations with the Addition of Dan Chen as Managing Director
- David Siemer Interviewed by Forbes: Investment Dollars for Start-Ups: Who’s Getting the Cash?
- Siemer & Associates and Siemer Ventures Launch WaveMaker Labs, a Singapore-based Technology Incubator Certified by the Singaporean Government
- Martin Lichauco Discusses Telecom Incubators with the Philippine Daily Inquirer
- David Siemer Discusses Capital Market Trends in Mergermarket’s Deal Drivers Americas 2011 Report
- Siemer & Associates LLC Advises Fetch Technologies on its Sale to Connotate
- Martin Lichauco to Present on Cross-Border Transactions for Lex Mundi in Manila
- David Siemer Discusses “Four Pitfalls that Sabotage Startup Growth” with SandHill.com
- Ivan Nikkhoo to Serve as Judge at USC Global Consulting Challenge
- Ivan Nikkhoo Serves on Early Stage Financing Panel
- David Siemer Discusses Global VC Trends with KPCC’s DeBord Report
- David Siemer Discusses 2012 Ad Network M&A and IPO Trends with MergerMarket
- David Siemer Interviewed in Hollyisco: 2012 M&A and Venture Capital Trends
- Ivan Nikkhoo Serves on Panel at Venture Summit Silicon Valley 2011
- Siemer & Associates LLC Publishes Q3 Digital Media and Software M&A Activity Exit Report
- Adconion Media Group Makes Global ‘Land Grab’ for Video Advertising Market
- Ivan Nikkhoo Serves on Private Equity in the New Economy Panel
- Ivan Nikkhoo Speaks at Los Angeles October AlmaSession
- David Siemer and Martin Lichauco to Judge Infant Companies at Startup Weekend Manila
- Ivan Nikkhoo Sits on YPO Mobile Technology Summit Panel
- Siemer Silicon Beach Summit Featured in Los Angeles Business Journal Article
- Siemer & Associates Advises mDialog on $5 Million in Series A Investment from Blackberry Partners Fund
- Siemer Silicon Beach Summit Highlighted in Investor’s Business Daily Article
- Siemer & Associates Publishes Fall 2011 Mobile Landscape Report
- Siemer Silicon Beach Summit Featured in Hollyisco
- Siemer & Associates Sponsors PWC’s Shaking the MoneyTree Report, Hosted by LAVA
- Martin Lichauco Featured in Asian Venture Capital Journal
- Morphlabs Raises $5 Million in Series C Financing
- Siemer & Associates Publishes Online Advertising Landscape Report
- Siemer & Associates and Frontera Group Join Forces to Form Siemer Ventures
- Ivan Nikkhoo Featured in Los Angeles Business Journal Article
- David Siemer Featured in Mergermarket Article
- Siemer & Associates LLC Extends Reach to Asia with Hong Kong Office, Hires Martin Lichauco as Managing Director ─ July 21, 2011
- Ivan Nikkhoo Elected to Los Angeles Venture Association (LAVA) Board of Directors
- Siemer & Associates Advises GoTV Networks, Inc. on its Sale to Phunware, Inc. ─ July 12, 2011
- Siemer & Associates LLC Provides Financial Advisory Services to Dedicated Media
- David Siemer Featured in Los Angeles Business Journal Article
- Siemer & Associates Sponsors L.A. Dealmakers’ Summer Soirée 2011 on July 21
- Siemer & Associates LLC Advises Pringo, Inc. on its Merger with MobileBits Holdings Corp. ─ July 1, 2011
- Ivan Nikkhoo to Moderate Panel at LAVA Investment Capital Conference 2011 ─ June 22, 2011
- Siemer & Associates LLC Advises Countdown Media LP on its Sale to Bug Music, Inc. ─ June 14, 2011
- Siemer & Associates Sponsors PwC’s Shaking the MoneyTree ─ May 26, 2011
- Shoedazzle Receives New Investment Round; Siemer & Associates Advises — May 18, 2011
- Siemer Ventures Makes Second Investment in Ranker – April 4, 2011
- Siemer Ventures Invests in Marketfish – January 10, 2011
- Siemer Ventures Invests in Morphlabs, Inc. – January 4, 2011
- Siemer & Associates Sponsors Digital Hollywood: Fall – October 18-21, 2010
- Siemer Ventures Invests in Phunware – October 15, 2010
- Siemer & Associates Sponsors Charity Ball for Kiva – May 15, 2010
- Siemer & Associates Will Be At Digital Hollywood: Spring – May 3-6 2010
- Siemer Ventures Invests in Ranker – April 26, 2010
- Siemer & Associates Announces the Hiring of Jonathan Roth as a Director
- David Siemer Speaks at SXSW 2010 – March 13th, 2010
- See David Siemer Speak At CES 2010
- Siemer & Associates Announces the Hiring of Michael Mizrahi as an Analyst
- Siemer & Associates Announces the Hiring of Garrett Taylor as an Analyst
- Siemer & Associates Advises Levelvision: College on its Sale to Visser Digital Media
- David Siemer Selected as Speaker at CES 2009
- Siemer Ventures Announce Investment in Xcast Labs
- Siemer & Associates Advises Adengage on its Sale to Technorati
- Lockheed Martin Completes Acquisition of Aculight Corporation
- Shelfari Joins the Amazon.com Family
- Siemer & Associates Announces Office Move
- WidgetBucks Secures $10 Million to Expand Internet’s Fastest Growing Ad Network
- J.D. Power and Associates Acquires Umbria Inc.; Expands Voice of the Customer Research Capabilities on the Web
- Answerology Sold to Hearst Magazines Online Q&A Community Platform to be Integrated Into Hearst’s Sites
- TurnHere Secures $7.5M in Venture Capital Funding from Venrock and Hearst Interactive Media
- Covario, Inc. (Formerly SEMDirector) Raises $16 Million B Round led by FTVentures
- WPP Acquires Blast Radius
- WPP Acquires Marketing Leader, Schematic
- CBS Buys SignStorey
- Thomson Acquires Distributor
- Corporate Executive Board Completes Acquisition of ITtoolbox, Extends Service with the Addition of a Professional Online Community
- The Walt Disney Company Acquires Club Penguin
- Hearst Corporation to Acquire UGO Networks: Deal Signifies Hearst’s First Major Step Into Digital Entertainment
- Jupitermedia Announces Acquisition of Mediabistro.com Online Community and Job Board Serving Media & Creative Professionals
- Pulvermedia Recapitalized with Debt by Technology Investment Capital Corp.
- Vantage Media Secures Series A Financing of $70 Million
- Fidelity National Real Estate Solutions Announces Acquisition of Go Apply
- Story Worldwide Taps Private Equity from Seaport Capital to Merge with Byte Interactive
- Hearst Magazines Announces Acquisition of eCRUSH.COM, Inc.
- Data Company Finalizes $134m Takeover of Opinion Research Corporation
- Channel Intelligence Leverages Funding by Internet Capital Group to Focus on Innovation
- Austin Ventures Acquires All Star Directories
- « Older Entries