fredag 9. april 2010

Bay Partners falls apart, in latest sign of crisis in venture industry

Bay Partners, one of Silicon Valley’s oldest venture capital firms, is falling apart, highlighting the continued stress aging firms are experiencing as new realities hit the industry.
Three years ago, Bay Partners, a firm that had launched in 1976, knew it was in trouble. At the time, we reported how the firm’s leaders orchestrated a clean-up, forcing several partners out, and hiring or promoting several younger, more promising partners to replace them.
However, three of those newcomers — Eric Chin, Sandesh Patnam and Salil Deshpande — resigned March 23. Chin declined comment, saying he’d been advised by a lawyer not to comment. We could not reach Patnam or Deshpande before publication. This is a blow to the firm, because the three comprised half of the six partners mandated to invest the firm’s eleventh fund, totaling $290 million, raised in 2005.
Gone are the comfortable days, when it was easy to place bets on Silicon Valley technology companies. In those “good ol’ days,” money came in short supply, and hungry startups gobbled up millions of dollars in order to build out the emerging computer and Internet industries. The odds of returning a lucrative investment were pretty high. The venture industry saw huge returns, on average. But lately, as the supply of money has outpaced quality startups able to absorb it, the average firm has performed quite badly. Competition is winnowing the ranks. Older, larger partnerships, in particular, are struggling to hire experienced younger partners to carry the baton. At a time when most cool startups are building their products with much less money, many talented venture capitalists aren’t joining big firms anymore. They’re starting firms themselves.
In Bay’s case, the firm’s co-founder Neal Dempsey, who is pretty much retired, told VentureBeat today that he will remain and help the two other remaining partners, Atul Kapadia and Neil Sadaranganey, handle the board seats at portfolio companies being relinquished by the resignations. He said he had no idea why the three had resigned. “Wouldn’t they have told you why?” I asked Demsey. “You’d think so,” Dempsey responded. “Anything I would say would be total speculation.” He said he’s had preliminary discussions “at best” with the three partners who resigned, and is still trying to “sort things out.” Asked whether Dempsey and his remaining partners would be able to raise another fund after this split, he said “We’ll see, it’s never over until it’s over.”
From our sources, we’re hearing there’s more to this story, some of which may come out in time.
Dempsey declined comment on the firm’s results, saying its investment data was private. He declined to give any examples of company success. Aside from struggling to handle the generational change at his firm, Dempsey has been close to controversy in other ways: He was on the board of Brocade Communications, and was hauled into court to testify during the trial of Brocade’s chief executive Gregory Reyes, who was found guilty of security and fraud charges related to the backdating of stock options. The board, including Dempsey, was eventually exonerated.
The outlook isn’t great in other ways: Our sources confirm that a “key-man” clause has been triggered. That’s a clause that allows limited partners to withdraw their money from a fund in the event that key partners depart from a partnership.
Investors in the existing fund include Paul Capital Partners, Horsley Bridge Partners, AlpInvest Partners, CS First Boston, BP Pension Fund, Portfolio Advisors and GIC Investments.
Some reports have said Chin has started a new form called Portola Venture Partners, but there is no more information available about that.
It’s not as though the departing partners aren’t without success: None had been at the firm long enough to establish a record, but Deshpande had invested in Springsource, a company which sold for $420 million to VMWare, Chin had invested in Invensence (he did so while at Artiman, the firm where Chin worked before joining Bay) and Interact 911, two companies both rumored to be close to filing IPOs sometime in the next year or two, and Patnam has invested in two promising companies, Paraccel and EnPhase Energy.
Companies: bay partners

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