“The Dead Body That Claims It Isn’t: I’m not dead.
The Dead Collector: ‘Ere, he says he’s not dead.
Large Man with Dead Body: Yes he is.
The Dead Body That Claims It Isn’t: I’m not.
The Dead Collector: He isn’t.
Large Man with Dead Body: Well, he will be soon, he’s very ill. “
— Monty Python and the Holy Grail
Where do VC firms go to die? What does this passing look like (and can entrepreneurs pay to watch)? You are seeing quite a few firms going out of business, including a number of prominent ones like Worldview and now Crescendo. In the PE Week Article: Crescendo Ventures…To Raise or Not to Raise, the article lays out why it takes so long for firms to go under. Worth a read to see the inner workings of the VC world.
Venture funds are 10 year vehicles normally with a couple of one year extensions. The GP’s can invest, normally, for the first 6 years and then harvest after that. It is not until the 6th year, usually, that the management fees begin to decline (go from being based on the committed capital to being based on remaining cost basis of the portfolio). Firms generally try to get their next fund up and running with a new set of management fees before the old fund’s fees start to decline.
However, in an environment such as this one, many groups deep sixed their 1999-2000 funds, and have not had enough realizations on their 2001-4 funds to get LP’s excited about supporting their next effort. The IPO market has languished for years and it is taking longer to ramp businesses up to acceptable revenue levels for exit. Plus, with some sector overfunding, there is an oversupply of acquisition candidates in many spaces (buyers’ market). So, the 1999 and 2000 era funds are seeing managment fees drop. Many groups are looking at cutting overhead (staff) to make due while also seeing if their portfolios are salvageable. Some, like might be the case with Crescendo, decide not to raise another fund (can’t salvage the last two funds) and the partners go their separate ways.
All Good Dogs Go to Heaven…not certain what the case is for VC’s…