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Sevin Rosen: Sometimes it makes sense to sit out!

October 8, 2006

Steve Dow, general partner at Sevin Rosen, has decided the traditional venture capital model does not work for his firm. In a letter to his limited partners he explained that they were returning more than $250MM in commitments for their tenth fund. Why?

As reported by Miguel Helft in the New York Times: First, the letter explained the firm had an inability to compete with money from other venture capital firms in every conceivable sector. Second, Sevin Rosen’s traditional exit strategy no longer provides satisfactory returns. The fund noted that they were unable to compete for “megadeals” like YouTube and Facebook.

I applaud this difficult decision. Sevin Rosen was a glowing example of a venture capital firm with successes such as Compaq, Lotus and Cypress Semiconductor. The firm explained, “If we really believe that there are fundamental structural problems in the venture industry, should we raise our fund and just hope that the problems will get better?” Their answer was no…

What will they do? Exactly what they should do. They will continue to invest their previous funds and figure out how to make money investing in new businesses. When they come up with a new model of investing I am sure they will have no problem raising a new fund. Steve concludes, “We have properly diagnosed the problem, but haven’t figured out for this patient what the therapy is.”

Vinod Khosla’s summary of returns from venture investing…

Written by Alexander Muse · Filed Under Blog 

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