Entrepreneurial

Can VCs be value investors?

– Jeff Bussgang is a general partner at Flybridge Capital Partners and an Entrepreneur-in-Residence at Harvard Business School. He is also the author of “Mastering the VC Game”. This article originally appeared here. The views expressed are his own.  –

“Security Analysis” is cited by Warren Buffet as one of his top four favorite and most influential books. Written by Columbia University professors Benjamin Graham and David Dodd, it was first published in 1934.

The book is a thick tome that articulates the thesis of value investing – the analytical techniques for valuing securities and seeking to invest in those securities in the context of their underlying value. The latest printing, the sixth edition, contains a foreword from the Oracle of Omaha himself as well as a preface from hedge fund investor Seth Klarman of The Baupost Group, who is regarded by many to be one of the modern masters in the art of value investing.

As a venture capitalist reading the book and trying to absorb its investment lessons, I wondered: can VCs be value investors? After all, the philosophy of value investing, in theory, should cut across all asset classes and managers. The precepts and principals therefore should apply to the venture capital business as well.

Sadly, they don’t.

Klarman writes: “Investing in bargain-priced securities provides a ‘margin of safety’-room for error, imprecision, bad luck, or the vicissitudes of the economy and stock market.”

Hot Prospects: Ken Howery, Founders Fund

– The following profile is an abbreviated version of Venture Capital Journal contributor Deborah Gage’s piece for the the VCJ’s series on “Hot Prospects” within the venture capital industry. –

Ken Howery’s first office after college was in a broom closet at 3000 Sand Hill Road – and no, he wasn’t the janitor. He and his new boss, Peter Thiel, who was running hedge fund Thiel Capital International, wanted a Sand Hill Road address. Even though the broom closet was the only space available, it was still on Sand Hill, and the more prestigious part at that.

“The broom closet was maybe 10 feet wide,” Howery said. “We had a desk, and any time somebody had to go to a meeting, they had to suck in to get out the door.”

Hot Prospects: Phin Barnes, First Round Capital

– The following profile is an abbreviated version of Venture Capital Journal contributor Tom Stein’s piece for the the VCJ’s series on “Hot Prospects” within the venture capital industry. –

Phin Barnes’ first entrepreneurial endeavor did not exactly go according to plan.

In 2003, the former college basketball player co-founded ResponDesign, a developer of fitness games for consoles like the Xbox and Play Station 2. With its first game, Yourself!Fitness – which was based on Barnes’ concept of a “virtual personal trainer on a game console” – the company blazed trail for a whole new category of fitness games, including the wildly popular Wii Fit.

Hot Prospects: Alex Kinnier, Khosla Ventures

– The following profile is an abbreviated version of Venture Capital Journal contributor Deborah Gage’s piece for the the VCJ’s series on “Hot Prospects” within the venture capital industry. –

At age 33, Alex Kinnier was rising quickly through the ranks at Google, but he didn’t feel fulfilled. The chemical engineer wanted to help the world with clean technologies. A phone call with popular venture capitalist Vinod Khosla that lasted several hours put him on the path to happiness.

Kinnier took a pay cut to join Khosla Ventures, but he was thrilled to be back in the cleantech arena. When he got the urge to leave to start a company, Khosla talked him into staying and becoming a venture capitalist.

Hot Prospects: Ann Miura-Ko, Floodgate Fund

– The following profile is an abbreviated version of Venture Capital Journal senior editor Joanna Glasner’s piece for the the VCJ’s series on “Hot Prospects” within the venture capital industry. –

Ann Miura-Ko has been in the epicenter of startup innovation since the fifth grade. That’s when the now 33-year-old partner in newly formed Floodgate Fund (formerly Maples Investments) moved to Palo Alto, California, where her father worked as a rocket scientist at nearby NASA-Ames.

After graduating from Yale, Miura-Ko followed a well-worn VC path, taking a job with consulting firm McKinsey & Co. A couple years into that job, Miura-Ko met her future mentor, Ted Dintersmith, a partner at Charles River Ventures. CRV had posted an ad for an analyst on the McKinsey job board, and Miura-Ko applied for and won the position.

Hot Prospects: Chi-Hua Chien, Kleiner Perkins Caufield & Byers

– The following profile is an abbreviated version of Venture Capital Journal contributor Deborah Gage’s piece for the the VCJ’s series on “Hot Prospects” within the venture capital industry. –

Chi-Hua Chien’s first experience with VC wasn’t pleasant. Nearly every morning for an entire week, at 7:00 a.m., he was summoned to a meeting with the backers of Coremetrics, who were threatening to shut down the faltering dot-com.

Coremetrics ultimately worked through its problems – just two months ago IBM said it would buy the company. And Chien’s performance during the company’s troubled period was not lost on Peter Fenton, then a partner of Accel Partners, one of Coremetrics’ backers.

Hot prospects: Top 10 VCs under 36

– Lawrence Aragon is the Editor-in-Chief of Thomson Reuters publication the Venture Capital Journal and compiled this list with the help of his VCJ staff of editors and contributors. –

Let me introduce you to 10 young venture capitalists who are poised to do great things. All of our “Hot Prospects” are 35 years old or younger and all have yet to make their mark in VC.

While you may not be familiar with Chi-Hua Chien, 32, of Kleiner Perkins, Phin Barnes, 34, of First Round, Alex Kinnier, 33, of Khosla Ventures, Ken Howery, 34, of Founders Fund or Ann Miura-Ko, 33, of Floodgate, we’re sure you will be in the next several years.

What VCs think about the venture capital business

- Charley Polachi is the co-founder of Boston-based executive recruitment firm Polachi, Inc. The views expressed are his own. -

We surveyed more than 1,000 venture capitalists last summer with one simple question: “Is the venture capital business broken? Yes or no?”. After 53 percent said “yes,” it got me thinking about what exactly is going on here. I reached out to 50 general partners of venture funds across the country from Silicon Valley to New York and Boston to gauge the state of the venture business.

I started the conversation by asking: “How does the venture business look on January 1, 2010, when the industry can no longer drag around the 1999 returns in a trailing 10-year average?”

Will VCs really stop funding startups?

If the American Jobs and Closing Tax Loopholes Act is passed there will be a lot of unhappy venture capitalists, who say they may stop investing in startups.

The new legislation, co-drafted by democratic senator Max Baucus and democratic congressman Sander Levin, aims to re-classify the returns fund managers and venture capitalists receive as ordinary income and not capital gains, as it has been for much of the last decade. This amounts to a much larger income-tax hit for VCs, jumping from 15 percent to nearly 40 percent.

Proponents of the bill, such as angel investor and blogger Paul Kedrosky, say that since VCs, like hedge fund managers, don’t invest their own money when funding startups, that they should have to pay the same tax rate as the rest of us.

Michigan VC’s Top Ten list

Mina Sooch is one venture capitalist who knows how to captivate a crowd.

The chairman of the Michigan Venture Capital Association took a page out of David Letterman’s playbook by introducing her own Top Ten list at the Michigan Growth Capital Symposium, an annual event hosted by the University of Michigan in the small college town of Ypsilanti, about 20 miles west of Detroit.

Sooch, a managing partner for Michigan-based VC firm Triathlon Medical Ventures, talked about some of the challenges her state faces in getting deals done with entrepreneurs and boosting the amount of VC dollars invested locally. The latest report by the MVCA showed Michigan had fallen slightly from No. 16 to No. 19 overall in 2009 and that overall VC investment had dropped by nearly 50 percent, from $246 million in 2008 to just $131 million last year.

In an attempt to accentuate the positives, Sooch debuted her list of “Top Ten Reasons Michigan Will Succeed”:

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