Excerpt: Redpoint Ventures struggling to crank out results

  • In 1999, Geoff Yang and a fraternity of five others — male, relatively young and most with Stanford, Harvard or Princeton degrees — founded Redpoint Ventures with great expectations. They hoped to leverage their reputation as a dream team of venture capitalists — a status they’d gained from past deals at venerable VC firms Brentwood Venture Capital and Institutional Venture Partners.
  • “We don’t want to be in the top 10 VC firms, but the top three,” said Yang at the time.
  • On top of that, they obtained a 30 percent “carry,” the portion of the returns that the partners keep for themselves — putting them in the league of about 10 elite VC companies. The wealth allows Yang to fly with a personal jet.
  • But less than five of the firm’s 44 investments in the funds are profitable. And the partners still have to manage struggling funds from their previous lives — all of which has left the partners facing a complex juggling act they didn’t expect just six months ago.
  • “All of 1999 and 2000 funds are likely to see poor performance,” says Mike Kelly, an investor at Hamilton Lane, who has money in Redpoint’s second fund. He had wanted to invest in the first fund. Now he’s glad he missed it.
  • Take Brentwood’s 1998 fund. On March 31, 2000, the fund boasted a 160 percent “internal rate of return,” according to InsiderVC data. But that was only on paper. By September of last year, that paper return deflated to 91 percent, as several Internet investments didn’t pan out.
  • One $9.7 million investment in Nutripeak — which sells vitamins online — was sold for $2.9 million in September — a $6.8 million loss. A $5.1 million investment in Zatso, a San Francisco Internet interactive news start-up, was completely written off.
  • So far, the Brentwood fund — 90 percent of it committed already — has only returned 60 cents on the dollar.
  • [Rocky] Pimentel has his work cut out for him. Zebulant, Bizbuyer, Enson and Themestream — representing over $14 million in investments — have closed shop. Telleo, a community Web site offering local information, is being liquidated. Fandom, an e-commerce science-fiction site, is being sold off. Esurance, which does personal insurance online, has been merged with another company. A slew of Redpoint firms in other sectors — Internet content, media, and even in communications — have also fallen out of market favor.
  • Yang says Redpoint is scrambling to restructure and redirect a few start-ups, and many of its investors say they believe the firm will pull it off. Fred Giuffrida, managing director of Horsley Bridge Partners, says Redpoint will perform in the top 10 percent of VCs.

Source: San Jose Mercury News