ArpexCapital

I really like the Crosslink Capital "hybrid" model and don’t understand why more funds don’t follow it.

From their website:

Our expertise is in discovering and managing growth situations, regardless of stage[emphasis added], from two-person, seed-stage private companies to public growth companies with several hundred employees.

In other words, Crosslink leverages their domain expertise to make investments across asset classes. 

This makes great sense to me.  For example, if you believe that gaming is an attractive sector, shouldn’t you be able to invest in the best game companies, regardless of whether they are early-stage or publicly-traded? 

Moreover, if the publicly-traded companies in gaming are overvalued, why not focus on private companies with more reasonable valuations?  The reverse also holds true: rather than piling on with more VC investment in an overheated but important sector, find investments in that same sector but in a later-stage asset classes.

If you have the managers with expertise in each asset class and deep domain expertise, then your long-term track record should be better than funds limited to a single asset class.

I don’t known whether Crosslink has done better than other funds but I would point to hedge funds to support the argument: one reason that most hedge funds do better than most venture funds is that hedgies, while often focused on specific sectors (e.g., financial services), can usually invest in multiple asset classes, i.e., they can go after any investment that makes sense, including private equity, small cap public companies, junk bonds, etc.

If venture capital needs to “reinvent” itself, as many have argued, one option may be funds that invest in venture capital… and other asset classes.

Thanks to Larry Cheng of newly-formed Volition Capital for putting together a list of the top global blogs on venture capital. I was surprised (and happy) to see that we are #29!
Thanks to all of you that read this blog — we are fortunate to be focused on an exciting industry (venture capital) in extraordinary places (Brazil and the US).
Cheers

“In the long run, men only hit what they aim at.”
Henry David Thoreau

A university tech transfer executive recently had a meeting with a member of one of the largest and most successful VC funds.

At the start of the meeting, the VC pulled out a document that mapped in exact detail 1) the entire cleantech space, 2) which cleantech verticals had the highest investment potential and 3) needed technologies within those verticals. The short, efficient meeting focused on whether the university had those technologies.

That VC’s behavior contrasts with that of many other VCs, including me, who too often react to entrepreneurs and their ideas rather than proactively seeking specific innovations.

Of course, most investors use both reactive and proactive styles and all of us are open to an entrepreneur with a great idea that completely surprises us. In general, however, VCs that approach the market with a detailed roadmap of specific needs in specific verticals have an advantage over VCs that approach the market with a generalist bent.

For one thing, if you know exactly what innovation you want, you can generally find it (or have someone develop it). You also save time and money: you can give entrepreneurs “yes” or “no” answers quickly, network within targeted communities, attend only relevant events and focus on specific information sources (thus avoiding information overload).

Perhaps most importantly, a specific area of focus enables a deep domain expertise, a prerequisite for successful investing in the long term.

Fred Wilson of Union Square Ventures wrote on a similar topic: “Thematic” investing, identifying big themes and going after them, versus “Thesis-Driven” investing, picking a specific area of focus and sticking to it.

He opines that both styles can succeed but smaller firms should use the latter. I agree and would add that Thesis-Driven investing (deep, disciplined focus on a specific vertical) enables Proactive investing (affirmative search for/discovery of specific innovations in that vertical).

I have taken a look in the mirror on these issues and realize that I need to take my own advice and have more discipline in Thesis-driven, proactive investing.

CNBC did a fascinating interview with Steve Case and Jerry Levin on Monday. I was working at AOL when we announced our $162 billion acquisition of Time Warner in January of 2000 (contrary to conventional wisdom, it was not a merger). At the time, it was the largest corporate transaction in history.

Although the deal came to symbolize the foolishness of the dotcom bubble, Case and Levin thought it made sense from a “big picture” point of view: AOL was the Internet for most people and Time Warner was the king of content. In practice, however, and for a hundred different reasons, the combination was impossible to execute. Timing didn’t help: the deal was announced two months before the Nasdaq crashed and the stock prices of both companies collapsed.

Two things from the interview jumped out for me: Levin’s willingness to take personal responsibility for what many consider to be the worst deal of the two decades and Steve Case’s comparison of venture capital to the entertainment business.

Levin showed strength and leadership in not blaming others for Time Warner’s stupid decision to be acquired by AOL. Such leadership is hard to find among people responsible for, e.g., the current financial crisis: regulators, politicians, financiers and… us, the average debt-soaked American. Most search long and hard for reasons the junk debt (oops, I mean “sub-prime” debt) crisis was not their fault.

I suspect that Levin now feels the benefits that we all feel when we face the truth and accept and make amends for our mistakes: having cleaned his side of the street, he can move forward with peace of mind.

Case compared venture capital investing in web-based businesses to the film business: studios play the role of venture capitalists and throw money at projects that, in the vast majority of cases, fail. The few hits (hopefully) make up for the many that fail. We already knew this but I like the analogy. His comments come around minute 18 of the interview if you want to fast forward.

P.S. Thanks to Alltop news — a useful news aggregation site — I would have missed the interview if they hadn’t mentioned it.