Michael Gracie

Funny how people spin things, even when it comes to dollars and sense.

First we hear that VC returns have plummeted. Next we hear that VC fundraising is hopping. How and why (besides incredible salesmanship)? If I knew an investment sector was getting its butt handed to it, I would be running in the other direction. Not there.
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I have done a few good deals, and a few bad ones. In the good ones, I was best described by my board as a pain in the ass, but I got the job done so there were few regrets in the end. But I never worked with that particular board again, not because I was told to go away, but because I felt I had slighted a few folks (in other words, I was embarrassed, so I just grabbed my hat). Behaviour modification kept me from getting burned in the bad deals, as I learned how to walk when walking was the best option, and in the good ones I now keep my mouth shut much more often. Still, I had some self-doubt - now I wonder if that anxiety was ever justified to begin with.
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The State of Colorado is restructuring its subsidized venture capital initiative, and will soon be utilizing professional fund managers to deploy investments in seed level and early stage companies.

The state had a previous structure in place, called the CAPCO program, which was complicated and expensive to operate. Under the former program, the state provided premium tax credits to insurers, and insurers in turn provided cash to qualified for-profit entities (called “Certified Capital Companies”). These companies must have been in the business of providing venture capital to other operating companies. Essentially, it was a subsidy arrangement. A new investment fund could be formed, and regardless of the money they raised from upper-tier institutions, could supplement pools with the insurer’s “free” funds - insurers often invest small portions of their portfolios in venture capital anyway. The original arrangement provided for up to $200 million in premium tax credits, and was later adjusted down to $100 million when funds were redirected to other programs.
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First they regretted it, while continuing to make investments in it.

Now, venture capitalists are backing away from spyware investments altogether. Or are they?

Some venture capitalists are smart - they make solid investments in good companies with long term potential. Others are not so smart. They make “me too” investments in companies that look like nothing but short-term cash flow generators, get fooled by grand exit strategies that never pan out, and regret their decisions almost as soon as they make them. But then again, its not their money, and with a fixed vig of 1%-2% per year on commitments, why should they care.

So it comes as no surprise to me that VentureWire is reporting WhenU.com just picked up $20 million in Series A financing.
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I think this is kind of funny. A bunch of supposedly smart, well connected folk have no place to put their money, so they invest some of it in companies who concoct spyware under the quise of being into “online marketing”.

Now they are regreting their decisions, as spyware has become the latest scourge of the internet. All the smart money is headed to anti-spyware.

I’m going to love hearing how they explain that to their limited partners - I am just glad I am not one of them.

Network Chemistry Inc., a developer of wireless network monitoring and analysis systems, said it has closed $6 million in a financing round from venture, corporate and government investors. The company provides wireless LAN network monitoring and intrusion detection systems. While not readily available for consumer use, Network Chemistry’s RFProtect product should keep your business’s WLAN safe from this type of intrusion.

Meanwhile, keep an eye out for more investments in this space.

About a week ago I was pondering the issue of VC overhang, and how a few interesting companies have been able to do without venture capital and still find ways to partner and/or exit. I attibuted more of the present course to deal saavy entrpreneurs than anything else, and now I am beginning to rethink that notion a bit more.
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I have often wondered what would happen when the two mentalities collided. On one hand you have the VCs, with rolodexes a mile deep, including direct lines to the best bankers. Any of the Sand Hill Road crowd will do. On the other, you have the scrappy entrepreneurial types, very creative and driven, and often with a little cashola of their own, garnered from previous deals. Guys like Mark Fletcher, founder of Bloglines, come to mind. Then you throw Google’s rejection of the status quo into the mix, with their dutch auction IPO, and you are left with an interesting dynamic.

Is the venture funded deal becoming a thing of the past? I wonder.
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