recently rated:

Rated by 41

2.5 2.6 2.6 2.8 2.4

2.6

General Catalyst

 

$$$$$ Cambridge, US East

top rated funds:

Rated by 39

3.5 2.4 2.6 2.9 2.2

2.7

Benchmark Capital

Certified

$$$$$ Menlo Park, US West

Rated by 35

3.1 2.8 2.6 2.3 2.7

2.7

Highland Capital Partners

Certified

$$$$$ Lexington, US East

Rated by 17

3.0 2.8 2.8 2.6 2.5

2.7

Advanced Technology Ventures

Certified

$$$$$ Waltham, US East

Rated by 11

2.6 2.7 2.9 2.6 2.0

2.6

Oak Investment Partners

 

$$$$$ Westport, US East

Rated by 20

2.4 2.2 3.9 2.0 2.5

2.6

Seraph Group

 

$$$$$ US East

Rated by 11

2.9 2.4 2.5 2.4 2.6

2.6

Sequoia Capital India

 

$$$$$ Bangalore, Asia / Pacific

Rated by 12

2.4 2.8 2.6 2.2 2.8

2.6

El Dorado Ventures

Certified

$$$$$ Menlo Park, US West

Rated by 11

2.6 2.8 3.2 2.5 2.2

2.6

Boulder Ventures

 

$$$$$ Boulder, US Central

Rated by 37

2.7 2.6 2.6 2.5 2.5

2.6

US Venture Partners (USVP)

Certified

$$$$$ Menlo Park, US West

Rated by 26

2.7 2.6 2.9 2.6 2.4

2.6

Atlas Venture

Certified

$$$$$ Londond, Asia / Pacific

Rated by 21

2.6 2.3 2.9 2.8 2.2

2.6

Crosslink Capital

Certified

$$$$$ San Francisco, US West

Rated by 25

2.9 2.7 2.7 2.1 2.4

2.6

Edison Venture Fund

Certified

$$$$$ Lawrenceville, US East

Rated by 41

2.5 2.6 2.6 2.8 2.4

2.6

General Catalyst

 

$$$$$ Cambridge, US East

Rated by 10

3.0 2.3 2.1 1.8 3.2

2.5

Tallwood Venture Capital

 

$$$$$ Palo Alto, US West

Rated by 11

2.8 2.4 3.2 1.8 2.4

2.5

Arboretum Ventures

 

$$$$$ Ann Arbor, US Central

Rated by 19

3.2 2.3 2.6 1.9 2.6

2.5

Austin Ventures

Certified

$$$$$ Austin, US Central

Rated by 12

2.8 2.5 2.3 2.2 2.5

2.5

Carmel Ventures

Certified

$$$$$ Herzliya, ME / Africa

Rated by 37

2.5 2.3 2.5 2.8 2.6

2.5

Lightspeed Venture Partners

Certified

$$$$$ Menlo Park, US West

Rated by 13

2.5 2.4 2.0 2.7 2.4

2.4

The Angels Forum

 

$$$$$ Palo Alto, US West

Rated by 30

2.0 2.4 2.6 2.7 2.2

2.4

Ignition Partners

 

$$$$$ Bellevue, US West

Rated by 22

2.7 2.5 2.3 2.1 2.5

2.4

Giza Venture Capital

 

$$$$$ Tel Aviv, ME / Africa

Rated by 15

2.4 2.3 2.4 2.5 2.3

2.4

Maveron

Certified

$$$$$ Seattle, US West

Rated by 23

2.6 2.2 2.7 2.2 2.5

2.4

Alloy Ventures, Inc.

Certified

$$$$$ Palo Alto, US West

Rated by 14

2.7 2.3 2.5 2.0 2.0

2.3

Greycroft

 

$$$$$ New York, US East

Rated by 16

2.3 2.0 2.6 2.4 1.9

2.2

Granite Ventures

Certified

$$$$$ San Francisco, US West

Rated by 19

2.7 2.2 1.7 2.0 1.9

2.1

North Bridge Venture Partners

 

$$$$$ Waltham, US East

Rated by 29

2.4 1.9 1.8 2.1 2.1

2.1

DCM-Doll Capital Management

 

$$$$$ Menlo Park, US West

Rated by 19

2.1 2.1 2.2 2.0 2.2

2.1

Greenhill SAVP

Certified

$$$$$ New York, US East

Rated by 18

2.1 2.1 2.1 1.7 2.5

2.1

GrandBanks Capital

Certified

$$$$$ Newton Center, Canada

Rated by 15

2.5 1.9 2.1 1.8 2.0

2.1

Summit Partners

 

$$$$$ Boston, US East

HomeShowcaseTermsAdviceOpenDiscussCoFound

Sign-upHelpFor VCsFor MediaAdvertiseTop VCsBanned VCs

The Early Admissions deadline for TheFunded Founder Institute semesters in the Bay Area, New York, and Seattle is midnight on Sunday, November 15th, 2009. Applications are also being accepted for the greater Washington DC area.

If you can benefit from training and mentorship to make your startup more successful, please apply. If you know a founder that needs help, encourage them to join the program. The Institute is run by founders for founders, providing a framework for successful entrepreneurs to share their experiences and to help.

There are a three benefits to applying before midnight on Sunday. First, early admission applicants have two separate chances to be accepted, since the application will be reviewed on this Monday and then again after the final admissions date. Second, the acceptance rate of early admission applicants has historically been just over 50%, versus lower rates in the final admissions deadline. Third, accepted founders from early admissions have more time to enroll, to get set-up, and to review the courses.

-- Apply here for the Bay Area

-- Apply here for New York

-- Apply here for Seattle

-- Apply here for Greater Washington DC Area

Completing an application takes under an hour. Good luck, and Enjoy!

TheFunded.com has created a unique Silicon Valley networking event for seed and early stage founders, the Founder Showcase. The evening event highlights the newest ideas and cutting-edge businesses, helping innovators gain traction among the Silicon Valley elite.

Ten companies will be elected by their peers to pitch in the Founder Showcase on January 14th, 2010. A number of companies have waiting for the instructions on how to get elected. The process is simple:

• First, reserve a ticket to the Founder Showcase event.
• Second, create a Pitch on the new Showcase section of TheFunded.com (formerly the Connect section). You need to be a Member of TheFunded to view the Showcase section and to create a pitch, which is free for CEOs.
• Third, collect the most votes from other CEOs, and you will be invited as one of ten on stage in Silicon Valley. CEOs can vote multiple times, but can only cast one vote per company.

Additionally, just five discounted Early Registration tickets remain to the Future of Funding event on February 18th, 2010. If you are interested in discussing the future trends of venture capital, angel investing, and startup liquidity, reserve a seat here among the top minds in the industry. Confirmed participants include Tim Draper of Draper Fisher Jurvetson, Michael Arrignton of TechCrunch, Kimbal Musk of OneRiot, and George Zachary of Charles River Venture, among many others.

Enjoy!

TheFunded Founder Institute, a four month program to help founders build the next generation of world-class technology companies, is launching a new semester in the Bay Area from December, 2009, until March, 2010. The Institute is currently accepting applications for founders in Washington DC, Seattle, and New York, and launched a successful semester in San Diego.

The program is run by founders for founders, providing a framework for successful entrepreneurs to share their experiences and to provide guidance. Read the comments in this TechCrunch article to see feedback from 54 companies that have graduated from the program.

The Bay Area semester is amassing a strong group of Mentors, including Aaron Patzer, CEO of Mint.com and top-rated Mentor from the first semester. Everyone that graduates from the program is invited to join a pool to share in the upside generated from the success of their peers. This adds a unique camaraderie to the program and creates a long-term peer support group with a vested interest in your success.

If you have a new company or if you are thinking to start a company, take a moment and apply to the program. Enjoy!

Where you acquire funding from may not just be as simple as how much money you are looking to raise. Your initial round of funding sets the precedent for all future rounds. Who you take money from and understanding the consequences is critical. Chris Dixon, CEO of Hunch, recently wrote on his blog about pitfalls of accepting money from the "wrong" entity. Discussed here are the difference between VC and Angel money as well as what to watch out for when accepting seed funding. Here’s the roundup:

VC or Angel, Don’t Approach The Wrong Source - Brad Feld outlines guidelines for whether you should be approaching a VC or Angel investor. From the amount of money you are looking to raise to the type of company you are building, these factors determine whether to approach a VC or Angel. - Entrepreneur

Taking Seed Money From Big VCs - If a big venture firms isn’t "following on" with their initial seed investment, that can cause serious problems for the entrepreneur. Even if a VC wants to follow on, Dixon says, "you are likely to get a lower valuation than you would have had you taken money from other sources of funding." He walks through an example of how this can happen. - Silicon Alley Insider

Red Flag Signals for VC Firms - Dixon explains a rather misunderstood phenomenon about VC sponsored seed incubator programs. Many people think that because they were associated with a prestigious VC firm, their company would be widely welcomed in the VC community. Dixon points out, alternatively, "the better the VC, the stronger the negative signal when they pass." Once a well respected VC firm passes on your deal, it sends a major negative signal to other firms when looking to raise money. - Chris Dixon’s Blog

There are three events coming up: an exclusive "Future of Funding" conference, an improved "Showcase" event series for seed stage startups, and a launch of the Founder Institute in Seattle.

The Future of Funding: Feb 18, 2010, San Mateo, CA
http://www.futureoffunding.com
Help shape the future of funding with the best minds in the industry. Members of TheFunded have 25 discounted tickets to this intimate conference for top limited partners, leading venture capitalists, and, of course, entrepreneurs.

Founder Showcase: Jan 14, 2010, Mountain View, CA
http://foundershowcase.eventbrite.com
Sign-up to pitch your company, meet your peers, talk to the media, and interact with top-rated investors at this exciting Silicon Valley evening.

Seattle Founder Institute Informational Event: Nov 2, 2009 Seattle, WA
http://institute-seattle.eventbrite.com
Learn about the Founder Institute in this evening discussion session at the University of Washington.

We hope to see you soon.

The Founder Institute, a new training program for technology entrepreneurs that shares equity upside among all stakeholders, is expanding into the Washington DC area starting on December 1st, 2009. Founders are invited to meet the Founding Member, hear from graduates about the Institute, and learn some salient lessons about building a fast growth company on Tuesday, October 13th, at 7:00 PM.

Anyone thinking of starting a company or running a new startup is invited to attend for free at George Mason University. Just ten spots remain for this event, so please register at the link below:

http://dc-founderinstitute09.eventbri...

Hope to see you there!

Today is the last day to purchase tickets to inaugural "Juice Pitcher" event on the evening of October 6th, 2009. Aaron Patzer, CEO of Mint.com, will discuss how he built a $170 MM company in three years. Munjal Shah, CEO of Like.com, will talk about the best practices in earning revenue. Ten seed stage companies will showcase their new products on stage. Founders, investors, and the media will have the opportunity to socialize over a casual dinner and drinks in Mountain View.

Reserve one of the last few tickets now:
-- http://juicepitcher.eventbrite.com/

Hope to see you there!

Sponsors

   

   

TheFunded Founder Institute, a four month training and mentoring program for entrepreneurs backed by some of the leading startup CEOs, has just started accepting applications for a Fall semester in San Diego / Orange County. The list of world class mentors eager to help build southern Californian companies is growing daily.

Members can help kick off this new program by spreading the word:

Know a founder in San Diego or someone who should start a company? Please invite them to apply: http://bit.ly/4BED8P

Know a Mentor in San Diego or a CEO that wants to help their peers? Please ask them to be a Mentor: http://bit.ly/13En7g

Interested in Washington DC, Seattle, or another location? Please sign-up for updates: http://bit.ly/4vJaJu

TheFunded has produced founder-friendly versions of every legal document necessary to launch a new startup. These documents were carefully written from scratch to keep founders in control of the companies that they create.

-- Bylaws
-- Certificate of Incorporation
-- Initial Stockholder Consent
-- Invention Assignment Agreement
-- Restricted Stock Purchase Agreement
-- Indemnification Agreement
-- Initial Board Consent
-- Action by Incorporator
-- Plain Preferred Term Sheet

Please help by sharing these documents with anyone that you know who is launching a startup, and borrow some of the founder protections for your own company from the Certificate of Incorporation.

Enjoy!

When it comes to raising capital, do women have a harder time than their male counterparts? A personal opinion from a well respected CEO and several reports and surveys shed some light on this topic and how to go about raising capital as a women entrepreneur. Here's the roundup:

SlideShare CEO on Women Entrepreneurs - An interesting blog post by Rashmi Sinha, co-founder and CEO of SlideShare, describes her thoughts and experience on raising venture capital as a woman and the hesitation of VC firms in women led startups. - Rashmi’s Blog

Statistics on Women and Outside Investments - A Fast Company blog post highlights statistics from studies and research findings pointing out that “male high tech entrepreneurs get 11% of total financing in formal equity, whereas women only get 1.6%." She also states opinions expressed at the National Academy of Engineering Committee on Women in Science, Engineering, and Medecine regarding why women entrepreneurs may have such a hard time raising outside investments. - Fast Company

The discussion on a broken venture capital model continues with prominent venture capitalist, Michael Moritz, speaking out at a panel discussion in Israel last week and a poll done back in June echoing concerns from the majority of the VC community. Moritz and other venture capitalists touch on the history of venture capital and issues that have risen over the past 20 years.

Moritz Addresses Broken VC Model - In a conference in Israel last week, Michael Moritz, a Partner at Sequoia Capital who backed the likes of Google and Yahoo, addressed the problem of the “venture capital model [being] broken for 20 years.” He alludes to the fact that over the past 20 years, the majority of venture capital funds didn’t deliver on their promise of returns. Another venture capitalist speaking at the panel, Chemi Peres, speaks to the “venture capital model that exists today is not suitable for [the venture capital] industry”. Here is a link to the article translated by Google Translate. - Venture Capital Model Broken

Survey of 100 VCs On Their Industry - A survey back in June conducted by executive search firm Polachi Inc, polling over 100 venture capitalists, revealed 53% of those responded “yes,” to the question, “Is the VC industry is broken?” Though “broken” is not clearly defined, it is significant to point out that a majority nonetheless thought something needed to be fixed. - Polachi VC Survey

On Tuesday, September 22nd, San Diego is hosting an informational event about TheFunded Founder Institute for local entrepreneurs, where you can meet the Founding Member and graduates from the inaugural semester. One graduate, @molorewards, will be launching at 2:45 PM at DEMO Fall 2009 Conference that day.

If you are interested in helping as a mentor or joining the San Diego program as a founder, please reserve a seat at link below:

-- http://bit.ly/3pjLu3

The free event runs from 6:00 to 8:30 PM. See you there!

On Tuesday, September 8th, TheFunded Founder Institute graduated 54 companies from the inaugural semester. Throughout the next few weeks, the businesses developed within the Institute will be launching to the public. Skimble (http://skimble.com), a web portal to track your active lifestyle, was the first Institute company to launch with several thousand thousand outdoor enthusiasts as early users, as well as a nice article in TechCrunch (http://bit.ly/siNpz).

The vision of the Institute is to help founders build world-class technology companies by providing peer support, structured training, mentorship by experienced founders, access to investors, and best of breed services. Each of the 66 founders in the program attended 17 training sessions over four months, and each session was lead by a team of world-class CEOs. After each session, the founders were assigned company-building projects that they completed with their peers in working groups. All of the stakeholders, from mentors to founders, participate in any equity upside generated from the 54 companies.

The Institute is now planning future semesters in the Bay Area and in various cities throughout the world. First, the Institute would like to thank the sponsors: Microsoft BizSpark, the Founders Fund, and Charles River Ventures. These firms are clear supporters of entrepreneurship. Second, the Institute would like to thank the 27 mentors that took precious time to help founders build the next wave of world-class companies: Aaron Patzer, Alain Raynaud, Bryan Thatcher, Bubba Murarka, David Higley, David Kidder, Eugene Lee , J. Barry Thompson, James Hong, Jason Calacanis, Jason Nazar, Jay Jamison, Jeff Stewart, Jen Shelby, Joe Zawadzki, Joe Betts-LaCroix, Ken Ross, Mark Pincus, Michael Arrington, Michael Diamant, Munjal Shah, Peter Pham, Philip Kaplan, Russ Fradin, Scott Heiferman, Scott Painter, and Trip Adler. Congratulations to Mentor Aaron Patzer of Mint.com for the $170 MM sale to Intuit today (http://bit.ly/XOUcL).

Finally, we partnered with leading service providers to develop special offerings to help Institute founders build their business across seven phases. Below is a list of the service partners, each of whom have also shown strong support for startups:

Ideation

• 99Designs (http://99designs.com/) - 99designs connects clients needing design work such as logo designs, business cards, or web sites to a thriving community of over 40,000 talented designers.


• Patent Express (http://www.patentexpress.com/) - Patent Express is the best place online to access affordable patent, trademark, copyright, international, and IP consultation services.

Product Planning

• Elance (http://www.elance.com/?rid=1JAGR) - Elance delivers an immediate, cost-effective and flexible way to hire, manage and pay independent professionals and contractors online.


• MediaTemple (http://mediatemple.net/) - (mt) Media Temple is an industry-leading, privately held, profitable web hosting and software application services company based in California.


• Wrike (http://www.wrike.com/) - Wrike is the leading provider of on-demand project management software for small and midsize companies.


• Weebly (http://www.weebly.com/) – Weebly enables over 2 million people to easily create personal sites and blogs or establish web presences for businesses, weddings, classrooms, churches, artistic portfolios, and more.


• nResult (http://www.nresult.com/) - nResult is a innovative software testing company, where their engineers act as a seamless extension of your own teams for a wide range of compatibility, functionality, usability, accessibility, and load testing.


• SugarCRM (http://www.sugarcrm.com/) - SugarCRM is the world's leading provider of commercial open source customer relationship management (CRM) software.


• The Outsourcing Company (http://www.theoutsourcingcompany.com) - Offering Web Development, Search Engine Optimization (SEO), Pay per Click (PPC), and Social Media Marketing (SMM) to help your company attract more clients - all at very affordable prices.


• PlanHQ (http://www.planhq.com) - PlanHQ is a web based business plan tool that turns your static document and spreadsheet into a dynamic and up-to-date overview of where you’re going and how you’re tracking.


• Mixpanel (http://www.mixpanel.com) - Mixpanel is a real-time analytics platform that tracks how users engage with web applications. Mixpanel goes way beyond Google Analytics and provides extremely detailed analysis that companies generally have to do all in-house.


• PBworks (http://www.pbworks.com) - PBworks is the world's largest provider of hosted business and educational workspaces. Over 50,000 businesses have chosen PBworks to implement knowledge management, extranets, project management, and more.


• ProjectLocker (http://www.projectlocker.com) - ProjectLocker is a leading provider of on-demand development tools for software developers, with products such as ProjectLocker Analytics and BuildLocker.


• New Relic (http://rpm.newrelic.com/affiliates/FF...) - New Relic is the leading provider of on-demand application performance management solutions. Their premier product, New Relic RPM, is an SaaS application performance management solution for web applications.


• BrowserMob (http://browsermob.com) - Ensure your website can handle heavy user loads with BrowserMob's low-cost on-demand load testing service.


• Balsamiq (http://balsamiq.com) - Balsamiq Mockups is the fastest and easiest wireframing tool on the market.


• CVSDude (http://cvsdude.com) - CVSDude is the leading provider of Subversion and CVS hosting. Use CVSDude to quickly set up, share, and back up your online version control and issue tracking repositories.


• Kontagent (http://bit.ly/8Gy6f) - Kontagent is a Facebook-funded viral analytics platform for social network applications. The Kontagent platform provides deep social data visualization and analysis that delivers actionable insights delivered via a hosted, on-demand service.

Modeling and Finance

• The Brenner Group (http://www.thebrennergroup.com/) - The Brenner Group is one of the technology community's leading specialized finance and accounting services firms.


• Liquid Scenarios (http://www.bpcentral.com/) - Liquid Scenarios software allows for advanced real time capitalization table and investment scenario modeling.


• Intuit (http://www.qboe.com) – Intuit’s Quickbooks is the #1 small business financial software.


• FusionCharts (http://www.fusioncharts.com/?BS=TheFunded09) - FusionCharts v3 helps you create animated and interactive Flash charts for web and desktop applications, and works with all databases.

Team Development

• NeoHire (http://www.neohire.com/) - NeoHire is a premier recruiting agency specializing in online media and technology properties, most widely known for their superb client relationships and deep knowledge of the online space.


• The Resumator (http://www.theresumator.com/home/s:fo...) - TheResumator lets you handle job recruitment in one online interface – including the ability to add a job board to your site, post jobs to other sites, and collect, organize, and track positions and resumes.


• SalesConX (http://www.salesconx.com/) - Salesconx provides virtual independent, pay-for-performance sales teams to drive your business by leveraging their network of over 10,000 selling and business experts.


• Pacific Business Centers (http://www.pbcoffices.com) - Pacific Business Centers (PBC) is a leading provider of on-demand offices offering part-time and full-time office space, including virtual offices, private offices, and team-space in a shared infrastructure.

Company Formation

• Wilson Sonsini Goodrich & Rosati (http://www.wsgr.com) – The premier provider of legal services to technology, life sciences, and growth enterprises worldwide.

Publicity and Awareness

• SeisMK (http://morris-king.com) - A division of The Morris + King Company (MKC), SeisMK expands MKC’s already renowned digital PR and social media services to benefit brands seeking to engage in resonant conversations with media, users and other influencers.


• Conference Guru (http://www.conferenceguru.com/) - Conference Guru is the most comprehensive place to discover technology conferences, and purchase discount tickets.


• MyPRGenie (http://www.myprgenie.com/) - MyPRGenie is a social media-based, PR delivery platform that allows you to build traffic, access over 500,000 journalist/blog contacts, and track your results.


• PRNewswire (http://www.prnewswire.com/) - PR Newswire is the global leader in news and information distribution services for professional communicators.


• Constant Contact (http://thefunded.constantcontact.com) - Constant Contact's leading email marketing and online survey tools help more than 275,000 small businesses create a dialogue and connect with their audience.


• SEOmoz (http://www.seomoz.org) - SEOmoz is the web’s premier destination for SEO education, tools and information. SEOmoz also provides consulting, Internet marketing and search engine optimization services to elite businesses around the globe.

Fundraising

• Lightserve (http://www.lightserve.com/) – Lightserve offers 409a valuation reports for a special Institute price, and offers software that stops VCs from sending around your confidential documents when you go out to raise money.

Congratulations, everyone, and thank you!

Economic turmoil is changing the way that VCs invest. Here’s the roundup:

Focusing Capital Away From Startups: Some firms are exiting the venture capital business to focus on more traditional private equity buy-outs, growth capital and infrastructure investments instead. 3i’s exit comes with taking a significant discount with their “36 venture capital investments [valued] at 250m ($412.8m),” but selling it to “secondary firms for around 100m ($165m)” - AltAssets

VC Firms Becoming More Cautious: During this economic downturn, most VC firms are decreasing their investing dollars and instead focusing on their best companies. Early stage startups are being considered even more risky during this time. From the first to second quarter of 2009, there seems to be little improvement in total investment dollars. Biotechnology and medical device industries increased by 47% in the second quarter. - Epoch Times

Carried Interest Fee Cutbacks: With the recent move by TA Associates to cut its carried interest fee back to 20% from 25%, other firms are also making concessions during this tough economy and trying times for the venture capital community. Previously during the dot-com bubble, carried interest fees could be seen as high as 25-30%, with little backlash because the firm’s returns had been more than 100%. - WSJ

Bill Gurley of Benchmark Capital has written the most detailed description published to date on what is happening with the fast changing venture capital industry. Venture capitalists are already trying to spin the brutally honest assessment of a fast shrinking industry.

Half of the post is published below. The full post is available here. If you are fundraising, this may provide the best insights into what the venture capitalists themselves are experiencing:

"Many are speculating that the year two thousand and nine represents a fundamental turning point for the venture capital industry. Some are arguing that the industry is in dire straits after years of poor performance. Others have argued that the math simply does not work for the industry’s current size. Another theory suggests that permanent challenges with the IPO market call into question the fundamental economics of the VC industry. Lastly, some credible authors have suggested that things are so bad that a federal bailout may be in order.

What is really happening in the venture capital industry? It is indeed quite likely that the venture industry is in the process of a very substantial reduction in size, perhaps the first in the history of the industry. However, the specific catalyst for this reduction is not directly related to the issues just mentioned. In order to fully understand what is happening, one must look upstream from the venture capitalists to the source of funds, for that is where the wheels of change are in motion.

Venture capital funds receive the majority of their funds from large pension funds, endowments, and foundations which represent some of the largest pools of capital in the world. This “institutional capital” is typically managed by active fund managers who invest with the objective of earning an optimal return in order to meet the needs of the specific institution and/or to grow the size of their overall fund. These fund managers have one primary tool in their search for optimal returns: deciding which investment categories (referred to as “asset classes”) should receive which percentage of the overall capital allocation. This process is known in the financial field as “asset allocation.”

Asset allocation is the strategy an investor uses to choose specifically how to divide up capital amongst asset classes such as stocks, bonds, international stocks, international bonds, real-estate funds, leveraged buys-outs (LBOs), venture capital, as well as other obscure classes such as timber funds.  Some of these asset classes, such as stocks and bonds, are known as “liquid assets,” because these instruments trade on a daily basis on exchanges around the world. For these assets, investors can be quite sure of the exact value of their holdings, as the price is set continuously in the market. Also, if they need to sell, there is a ready market to accept the trade. Illiquid assets, also known as alternative assets, include all the other investment classes that do not trade on a daily exchange. These “private” investments (as compared to “public” liquid investments) are considered higher risk due to their illiquidity, but also are expected to earn a higher return. Some hedge funds are included in alternative assets either because they themselves invest in illiquid investments or because they put strict limitations on the trading capability of the institutional investors, rendering themselves “illiquid”.

Asset allocation is a well-studied area within the field of finance. A prototypical U.S.-based asset allocation model might allocate 25% to U.S. stocks, 30% to U.S. debt, 25% to international equity and debt, and let’s say 20% to all alternative assets. Within alternative assets, LBOs might be 60%, and venture capital could be as low as 10% (of the 20%). As a result, venture capital could be as low as 2% of a institutional fund’s overall capital allocation. Most people fail to realize just how small venture capital is in the overall scheme of things.

Very generally speaking, experts and academicians have considered it “conservative” to have a smaller allocation to all alternative assets reflecting the risks of illiquidity, the inability to ascertain price, and the higher difficulty in analyzing the non-standard vehicles. It is a fairly straightforward, conservative investment approach to favor liquidity and certainty over absolute potential upside (this is the same argument for holding bonds over stocks).

Over the past decade or so, a large number of very influential institutional funds have substantially increased their allocation in alternative assets. In some extreme cases, these investors have taken this allocation from a conservative amount of say 15-20% to well over 50% of their fund. Many people suggest that David Swensen at Yale was the original architect of a strategy to adopt a much higher allocation to alternative assets. Regardless of whether he was the leader or not, several funds simultaneously adopted this higher-risk, higher-return model. (For a more detailed look at how this evolved and why, see Ivy League Schools Learn a Lesson in Liquidity and How Harvard Investing Superstars Crashed. For an even deeper dive including comparative asset allocation models see Tough Lessons for Harvard and Yale.)" "

- Read On

TheFunded Founder Institute has just released a new "Plain Preferred" term sheet with support of the blogosphere.

An established entrepreneur, Chris Dixon, posted about an ideal term sheet for first round funding, which started an blogosphere discussion about terms. Fred Wilson, a partner at Union Square Ventures, came out in support of this simplified term sheet, so TheFunded Founder Institute has engaged WSGR to author the exact template agreed on by various entrepreneurs and investors for anyone to use:

FFI Plain Preferred Term Sheet -

The new "Plain Preferred" term sheet compliments the founder-friendly incorporation documents already developed by the Institute, which are being used by approximately 50 start-ups both within and outside of the Institute. TheFunded.com Terms section submission form lists nearly 100 different terms that are in common use by venture capitalists. Fred Wilson, Chris Dixon, and others in the debate agree to a dramatically simplified term sheet with some significant changes against the norm:

- The elimination of participation, which has become a common request since the Internet bubble burst. "Participation" means that investors "double dip" by getting both their liquidation preference and their equity allocation.

- A 1x liquidation preference, versus a 1x to 3x range in recent deals reported on TheFunded.com. A "1x liquidation preference" without participation means that investors choose to either (a) get their money back or (b) convert to equity and get the equity value only. This is a downside protection term.

- Single trigger vesting, which allows founders to vest all of their equity and make money in an exit. Many investors require "double trigger vesting," which means that the company needs to sell and the founder needs to be terminated for his or her shares to vest.

New and complex terms, such as "Super Pro Rata" investment rights, are removed from the Plain Preferred template, since they add marginal value to investors while adding significant complexity to deals. Legal costs are rising while venture returns are shrinking. The average Series A investment costs $50,000 in legal fees to close. Meanwhile, the founders themselves are being squeezed with more and more terms that lock up exit value, creating a misalignment of incentives.

The Plain Preferred term sheet aligns the investor and the entrepreneur incentives. This is a rare example of a term sheet where the percentage ownership of participants will correlate closely to returns generated in an exit.

Enjoy!

Some more news about lower investment returns and the impact of down rounds. Here's the roundup:

The Anti-dilution Wiped Out - There is some good analysis coming out about the impact of anti-dilution provisions on companies facing a down round. Since over half of the later stage rounds are now being priced below the last round, management can expect to see their ownership halved in the majority of financings even with the more management friendly weighted average anti-dilution. - Startable

The Limited Partner Losses - Cambridge Associates data is showing concerning trends for venture capital returns. The net returns to Limited Partners from 1,271 venture firms over the last 9 years is averaging -4.9%. The average return over the last 8 years is -3.4%. Most venture funds have a fixed life of ten years, and the returns are most accurately reflected in the last couple of years, when most of the assets are matured, liquidated, or closed. - Cambridge Associates

Some news has surfaced that more than half of late stage rounds have valuations below previous rounds, often called a "down round." It's time to save, not spend. Here's the roundup:

Down is the New Up - Fenwick & West, a Silicon Valley law firm, publishes trend data on venture deal terms. The report indicates that a whopping 51% of Series C rounds were down rounds, and 67% of any Series D or later round was down. "Down rounds exceeded up rounds 46% to 32%, with 22% flat. The past two quarters are the only quarters since 4Q03 in which down rounds have exceeded up rounds." - Fenwick & West

Inside an Insider - A transcript from the earnings call of one of the largest venture debt providers, Hercules Technology Growth Capital, is available online. The transcript shows inside the private world of venture capital through the eyes of a critical financing partner. "We downgraded a select group of companies based on their need to raise additional capital and accordingly posted unrealized depreciation..." - Seeking Alpha

It's been quite on the venture front over the last few days, but some news has started to surface. Here's the roundup:

VC 3.0 is Here - Stu Phillips of Ridgelift Ventures predicts a big change coming to venture capital. By his definition, VC 1.0 was the inception of the model. VC 2.0 was the Internet bubble, and VC 3.0 is the ensuing shakeout. "The bubble run up resulted in the inflows of two forms of capital into Venture firms… money and people. The expansion in human capital attracted a lot of very smart people but with little operating experience. You wouldn't want a medical procedure to be performed by someone who had been trained but was about to conduct their 3rd or 4th procedure - on YOU." - Soaring on Ridgelift

What do VCs do next? - As more VCs lose their job or leave the field, where do they go? TheFunded has a big list of former VCs, and PE Hub has a quick synopsis of gainfully employed former VCs who have moved on from the venture business. - PE Hub

Location, Location, Location = Returns - Harvard has done a study that location is everything in the venture business, justifying high concentrations of venture capitalists by better returns in those highly concentrated regions. This begs the age old chicken and egg question, which came first: a successful region or the venture capital market entry? - Harvard Business School

Just Don't Get the State Involved - Venture funds run by the British government apparently under perform compared to their private counterparts, according to a recent study conducted by a private counterpart lobbying group. - Financial Times

There has been a growing online debate about who is to blame for the current problems in venture capital and entrepreneurship. Here's the roundup:

It's All a Ponzi Scheme: A Fortune magazine columnist attending a Northern California party calls the venture capital industry a Ponzi scheme, where VCs make all of the money and entrepreneurs are "left holding the bag." - Huffington Post

It's the Entrepreneur's Fault: A European VC from SAP Ventures, Paul Jozefak, fires back that entrepreneurs are to blame because: 1. they negotiate "poorly," 2. they underperform, 3. they make bad decisions, 4. they pick the wrong VC, and, sometimes, 5. they are, in fact, screwed. - Babbling VC

Maybe the VCs Have Lost Faith: PE Hub is reporting on the VC Confidence Problem, where a top VC recently stated: “I don’t know what kind of a career I’m going to have in venture capital.” The article goes on to say: "Even successful VCs think their careers are in trouble — a recent survey found that nearly 53% of VCs believe their business model is broken — and that may be the biggest problem the VC industry faces."- PE Hub

Not in Fundraising, Though: "In a recent survey of 185 respondents, 59% indicate they plan to raise funds over the next year." There are a lot of good insights into the venture worldview available at the Wall Street Journal based on a Pepperdine University survey. - WSJ

There are some interesting developments in the venture world. Are they exciting? Well, they are to some... Here's the roundup:

Changing Deal Terms Excite VCs: Cameron Lester of Azure Capital states in a recent New York Times editorial that it is a great time to invest, since terms have become more favorable to investors. The "compelling valuations" and trimming of the fat make this a "Golden Age for VCs," according to Lester. - NYT

Big Fundraising is Possible: Matrix Partners, a controversial firm on TheFunded.com, raised a $600 MM ninth fund. The early stage investor will deploy the capital to consumer internet, software, mobile, communications and systems companies. - WSJ

The SBA Ready to Support VCs: The SBA is working to provide $6.2 billion in loans to entrepreneurs through stimulus package capital. With respect to venture-backed businesses that were previously exempt, Small Business Administration chief Karen Mills says, "we don't want to turn away the most promising businesses ... [just] because they have a certain structure." - BusinessWeek

Multiple sources are confirming and reporting that boardroom politics drove Zappos to the M&A table, leading to an $807+ MM deal with Amazon. Here's the roundup:

"PEHub.com, citing anonymous sources close to Zappos, suggests that Hsieh and Sequoia Capital came into conflict about the company’s future. Sequoia, PEHub says, wanted Zappos to sell to generate some liquidity while Hsieh hoped to remain independent." - Wall Street Journal

Sequoia held a total of $35 MM in preferred stock between a Series E and F rounds with a rumored 3 to 4 time liquidation preference, supporting nine figure fund returns. Zappos was widely reported to have broken $1 billion in sales and operating profitably, allowing the company to pursue an eventual IPO.

"'When Mike [Moritz, a GP with Sequoia] came in, he came in at a high valuation, but he countered that with a very high liquidation preference,' the shareholder says. 'It puts management on one side of the table and investors on the other. Then there’s always pressure to sell the company.' At least two sources who do not hold board seats, but are directly involved with Zappos, indicated that Moritz and Zappos CEO Tony Hsieh came into conflict about the company’s future. Moritz, the sources say, wanted Zappos to sell while Hsieh wanted to remain independent." - PE Hub

Congratulations to Tony Hsieh and the Zappos team for an excellent outcome, regardless of the politics.

A lot of changes are in-store for venture capitalists in the second half of 2009, and recent data published by the National Venture Capital Association shows concerning trends. Venture capital firms raised a meager $1.7 billion in the second quarter of 2009, almost six times less than the $9.2 billion raised in same quarter last year. Meanwhile, firms invested $3.6 billion in Q2 ‘09, more than twice as much as they were able to bring in. With more money going out than coming in, here are some predictions for the coming months.

To start with, the number of “Hail Mary” investments into under-performing startups will decline further throughout 2009. The number of later stage financings has already dropped precipitously from 661 in Q2 ’08 to 379 in Q2 ’09. Capital for later stage deals is now being reserved for the best performing businesses.

Any company with “hockey stick” growth will be able to raise historically large amounts of capital in the second half of 2009. Deals for $100 million or more will have company-friendly terms and nine- or 10-digit valuations. Managers and employees will take millions off the table in private transactions. The $100 million purchase of Facebook common stock by the Russian firm, DST, serves as just one example.

Venture capitalists have started pumping their remaining capital into hundreds of seed and early stage deals, looking for the next big thing. Dollars invested in these opportunities have already jumped from $893 MM to $1.49 billion between Q1 and Q2 of 2009, and there will be more increases in both Q3 and Q4.

Early stage companies have strong prospects of raising significant capital in a “make it or break it” round. Venture capitalists are offering more cash up-front with fewer chances for follow-on investments. The average early stage deal size jumped from $4.1 million to $5.6 million in the first two quarters of 2009, and this number should increase to around $6 million for the remainder of the year.

If a funded company needs more money without achieving significant market traction, the remainder of 2009 will be difficult. More than 50 percent of venture capital portfolio companies will be left with insufficient capital to operate. Many of these companies will be gutted and put into “life support” mode or sold off to competitors for stock, allowing venture capital firms to maintain inflated portfolio valuations. Any acquisitions that generate precious cash will get pushed through at historically low returns of less than 2x, like the recent story of Mochi Media.

The government will likely bail out some of these companies and the venture firms behind them in the second half of the year. The Small Business Administration is considering policy changes that would allow $2.2 billion of liberal government dollars to prop up portfolio valuations.

But that government money comes at a price. Large limited partners in venture funds, many of which are government affiliated like CALPERS, are starting to complain about the 2 percent management fees and 20 percent carry (the share of profits received by VC partners) that firms earn, so, like the big banks, venture capitalist pay cuts are on the horizon in 2009.

Given many of the challenges facing the venture capital industry, there has already been a brain drain. Just over 10 percent of the top 2,000 venture capitalists rated on TheFunded.com have quit according to auto responder messages on a recent mailing. By the end of 2009, at least a third of the top VCs from the previous generation of funds will have left the industry.

The number of firms started by “new managers” approached a 10-year high in Q2 ‘09. For the most part, these funds are started by entrepreneurs looking to bring about change, like the recent $300 million fund by Marc Andreessen and Ben Horowitz, or the fund announced yesterday by Michael Birch of Bebo.

Change is in the air, and TheFunded.com will chronicle changes through the "roundup" updates.

On July 1, 2009, TheFunded.com planned to remove a "Suspicious Reviews Warning" message placed on 38 venture capital firms listed in the directory. The decision to remove the warning has been delayed, and TheFunded.com would like to hear Member feedback on how to proceed.

The warning system was introduced after various venture capital firms started to pressure portfolio company CEOs to write favorable reviews. Initially, TheFunded.com developed an algorithm to detect when a fund engaged in a campaign to manipulate their reviews and then warn them. The output of the algorithm was checked against first hand reports by CEOs and deemed to be accurate. Inevitably, some manipulation was missed by the algorithm, so TheFunded.com introduced functionality for Members to flag funds that try to game the system.

The goal is to have a leaderboard of top-rated funds that is relatively accurate and reliable as a benchmark of quality, not manipulated by venture capital firms that feel they deserve better. A Member complained earlier today: "I know enough about these firms to know how several were sabotaged by bitter ex-employees of portfolio companies." Over 75% of the funds on the "Suspicious Reviews Warning" list were identified by the algorithm and further validated.

TheFunded.com is planning to just remove the warning messages and re-run the algorithm in a few weeks. Do Members have any other suggestions on what they would like to happen? Please post any recommendations in the Feedback below.

Top venture capitalists used to have ten limited partners clamoring for one investment spot. Now, they face ten openings with one interested investor. Here's the roundup:

Returns on Principle Declining: Rumor has it that the average amount of money returned to limited partners by any fund over $500 MM since 2003 is just $0.10 to $0.20 on the dollar. The good news is that many funds are showing paper profits as a result of subsequent portfolio company financings at higher valuations. The bad news is that there is no liquidity in sight. The worse news is that limited partners tend to re-invest returned capital into the asset class.

But, There is One Winner: Rumor has it that only one name brand venture capital fund has returned the whole principle amount invested by limited partners in any fund since 2003, and this is a result of the sale of YouTube to Google. There are 3,967 funds listed in TheFunded database, which means that this is the same odds as getting dealt four of a kind from the flop in Texas Hold 'Em poker.