Venture Capitalists' Lemming-Like Behavior

Strategic Insights -

As venture capitalists pour investments into "hot" sectors like wireless and semiconductor technology, a challenge emerges: how do VCs differentiate themselves from the pack? Panelists at the Private Equity Roundup in Scottsdale, Ariz., sought to convince the audience of their firms' unique strategies, but establishing a distinct identity in a crowded market is proving difficult. While some VCs claim to focus on early-stage companies, others have shifted emphasis to later-stage companies with products and revenue. Amidst the chaos, a few firms are trying to go off the beaten track, investing in companies with unique technologies and less competition.

Key Takeaways:

  • OVP Venture Partners' Gerald Langeler emphasized the importance of being one of the few indigenous VCs in the Northwest, with a strong network of critical links in the region, including Intel Capital.
  • Technology Partners of Palo Alto, Calif., invests in both life sciences and information technology, with a particular emphasis on energy technology, as mentioned by partner Ira Ehrenpreis.
  • Ventana Capital Management is a 30-year-old firm with a predominantly non-U.S. investor base and a global network for portfolio companies, as stated by chairman and founder Thomas Gephart.
  • Crisis does provide an opportunity: Blueprint Ventures, a South San Francisco, Calif., firm, completed a $10 million Series A round for Platform Solutions Inc., a Sunnyvale, Calif., supplier of open systems computing products for mainframes, in December.
  • Even successful firms like Blueprint Ventures have to settle for less unique deals on other occasions, as seen with their investment in Chicago-based Sarvega Inc., a Web services technology provider, which had already received $20 million in two previous rounds from InterWest, Bessemer Venture Partners, ComVentures, and KB Partners.
  • OVP invested in UXComm Inc., a network management software startup, in alliance with Intel Capital and Foundation Capital of Menlo Park, Calif., following a $6 million first-round funding in September.
  • OVP acknowledges investing in "hot" areas, such as wireless semiconductors, but with caution, as evidenced by its investment in Airgo Networks Inc., a maker of chipsets for wireless local area networks, with a $25 million follow-on in February.
  • McDermott Will & Emery's John Hession emphasized that the key to differentiation is the individual VC's experience, contacts, and ability to provide value to entrepreneurs beyond just writing checks.

Statistics:

  • $10 million Series A round completed by Blueprint Ventures for Platform Solutions Inc. in December.
  • $6 million first-round funding received by UXComm Inc. in September.
  • $25 million follow-on investment made by OVP in Airgo Networks Inc. in February.
  • $20 million received by Sarvega Inc. in two previous rounds from InterWest, Bessemer Venture Partners, ComVentures, and KB Partners.

Sources:

  • Private Equity Roundup in Scottsdale, Ariz., sponsored by the Strategic Research Institute
  • OVP Venture Partners
  • Technology Partners of Palo Alto, Calif.
  • Ventana Capital Management
  • Blueprint Ventures
  • Intel Capital
  • Foundation Capital
  • McDermott Will & Emery