Until recently, the venture capital game has been a world of segregation.
If you have power, money and connections, you can join the club. If not,
then forget it.
This seemed unfair to Andrew Singer. While working at Robertson Stephens,
Singer and a colleague, Peter Freudenthal, mulled over an idea to bring
venture capital to the masses. The result was meVC.com. “At first, we
wanted to do everything,” said Singer. But after lots of analysis, it did
not make sense to reinvent the wheel. So, meVC.com partnered with the top
venture firm of Draper Fisher Jurvetson. “Not only does the firm have a
great track record,” says Singer, “but has a reputation for being
cutting-edge. After all, they were investors in Wit Capital, which brought
IPOs to the masses.”
The first fund – called the meVC Draper Fisher
Jurvetson Fund I (DFJI) — was launched with an IPO on
the New York Stock Exchange last March. The structure is a closed-end fund.
In the offering, DFJI issued 16.5 million shares at $20 each, raising $330
million. The fund will focus primarily on high-tech ventures. Although,
meVC.com has recently filed with the SEC to launch a biosciences fund. “We
do not have any exclusivity with venture funds,” said Singer. In other
words, expect meVC.com to launch a variety of funds.
Currently, DFJI has made $85.5 million in investments and has $229.1 million
in cash. The net asset value of the fund is at $19.07 and the stock is
currently selling at $17.375.
Some of these investments include:
$10 million for EXP.com, which is a provider of online advisory services
(the round was for a total of $33 million). Other investors included J. &
W. Seligman, Ask Jeeves, Bonaventure Capital, Bessemer Venture Partners,
CMGI @Ventures, Bowman Capital, Oracle Ventures and Comdisco Ventures.
$10 million for Pagoo, which is an Internet phone service provider (the
round was for a total of $15 million). The round included Hummer Winblad
Venture Partners and Selby Venture Partners.
$10 million for infoUSA.com, which is a provider of proprietary business and
consumer databases and marketing services (the round was for a total of $18
million). Other investors included GM Investment Management and Trident
Capital.
The meVC.com site does a great job of providing useful information on the
portfolio companies. For example, you have access to video interviews with
the CEOs, and articles and tutorials that help to explain industry trends.
The structure of a typical VC fund is a limited partnership. Investors
agree to keep their money in the fund for anywhere from seven to ten years.
The reason is that private-equity deals have long gestation periods. Even
if there is a liquidity event (such as an IPO or merger), it can take time
to get money out of a deal. For example, suppose a portfolio company goes
public. Well, there is a lock-up period, which prevents insiders from
selling the stock for six months.
Interestingly enough, as an investor in DFJI, you have an immediate exit
strategy. That is, you can sell your stock any time. But, keep in mind
that the fee structure is similar to most venture funds. The portfolio
managers get 20% of the net profits and a 2.5% annual management fee. Also,
closed-end funds have special tax features. Basically, gains must be
redistributed back to shareholders as dividends. If the fund has a great
year, you may be stuck with a big tax bite.
Venture funds will typically focus on certain parts of a companys life
cycle. Some will invest at the seed level and others will focus on the later
stages, known as mezzanine financing. DFJI will be mostly for mezzanine
financing.
True, mezzanine financing has a lower risk profile compared to seed levels.
But this is not to say that DFJI will not be extremely volatile.Rather,
such funds c
an undergo much volatility. But there are some things to
consider. In the past few months, the venture world has undergone much
change. For example, valuations of private deals have been falling. This
should be good for DFJI. What’s more, the IPO market is starting to return
and there is likely to be more mergers & acquisitions. Such liquidity
events can have a substantial impact on a fund. But according to Singer,
investors should not be focused on the short-term. The big returns for VCs
have been over long periods of time.
