Charles River Ventures (CRV) - Charles River's Matrix Envy | Steve Lisson

InsiderVC.com *Following is a draft excerpt from* *Beardstown, err, Battery Ventures:* *The most overrated venture firm* *Part A: The three runners-up, and who to blame* IX. WILDNERNESS OF MIRRORS - Charles River Ventures (CRV) "I tell you, I've been over this stuff a bunch of times - it just doesn't add up. Who does these books? I mean, if I ran my business this way, I'd be out of business" (Murray Blum CPA to The President in the movie/Dave/, while the two friends were analyzing the Federal budget looking for savings). When the Federal government wants more money to spend on programs or people, it prints the money, borrows it, or raises taxes. If CRV needs money, then it can resort to extending the life of an ancient, almost fully wound-down fund. Only if a partnership can't raise more money does it goes into this mode, so the GPs can make their car and mortgage payments; otherwise, it's stubbornness, hopefulness, and nickel-chasing. /Wilderness of Mirrors/ was the title of a book about delusions induced by the inherent paranoia of a counterintelligence officer. Subtly, the principle works here, too. Anecdotally, every time a firm has extended the life of a fund, the performance has not improved appreciably if at all; frequently, the returns go down, not up. Why should a firm even concern itself with returns of an eleven-years old fund, especially if it has raised several more and should be more concerned with how to deploy the billion(s) it now manages - many times more than the runway left in or which could be squeezed out of a tiny, ancient fund from a decade ago? After all, that fund's performance has already been used to raised all the new billion(s) of fresh capital. Moreover, any marginal gain will be more than outweighed both by management fees and management "time-sink", further depressing any possible ROI. Answer? Those additional management fees. Depressing the IRR at this point, with all those new funds and fresh capital already raised, is the current (not former) CRV GPs' gift to themselves - enrichment -- however just it might be. Charles River Partnership VI (1990 - $50MM) as of 9/30 still held five investments costing $12.3MM but with, of course, all purported appreciation in value already factored into the IRR. Like proving perjury and conspiracy to defraud, it's not necessary to extract from the perpetrators a confession (and they usually aren't stupid enough to allow such a thing anyway). One need only look at the result, the practical effect, of extending the term of the partnership for two years (was 11 years commencing September 1990 subject to two one-year extensions) through 31 Dec 2002. Where's the measly $200,000 sum total going? Our vote says to the marketing partner hired around the same time as approval for the extension. Funny, that's also when the well-scripted, verbatim-like transcripts of Benchmark rumors began. Perversely, this twisted, sordid wilderness of mirrors (extending the life a fund to depress rather than juice or at best eke-out at most an imperceptible and possibly counterproductive gain) is further exacerbated by CRV capping the extension of Fund VI's fees, for liquidating those five investments, at $100,000 a year. How touching - and misplaced is the current group's priorities. Like the national Democratic Party, which lost the 1984 and 1988 U.S. presidential elections because it was still obsessed with holding congressional hearings into a fantastical "October Surprise" scenario (Reagan campaign manager William Casey ostensibly negotiating release of the Iranian hostages on the eve of the 1980 election) CRV's obsession with an eleven year-old fund is both product and end-result of one thing and one thing only. Matrix envy. Reacting to the first appearance of our Pecking Order, CRV's in-house fluffer began inserting the following mantra into press releases: "Throughout the past decade, Charles River funds have been among the industry's highest performing funds according to Venture Economics, a division of Thomson Financial Securities Data that covers investment, exit and performance activity in the private equity industry." Panicking after Waltham's Matrix Leading Venture Pack On Both Coasts in /The Boston Globe/, and despite our vociferously, vituperatively, pedantically discouraging such head-to-head comparisons, CRV went around loudly, persistently whining to anyone (notably /Upside's/ Patrick Meadows, who fell early and hard) willing and gullible enough to succumb, that it outperforms Waltham, Mass. neighbor Matrix. But the only same vintage year in which both raised money was . . . you guessed correctly. This same one at issue here. The fact is the performance of Charles River Partnership VI (1990 - $50MM) fails when measured against Matrix Partners III (1990 - $80MM): only two-thirds the IRR% and less than half the POM% (Piles of Money: actual distributions of stock or cash expressed as a percentage of committed capital). However, the current iteration of CRV can console itself with the knowledge that this performance of their prior group does, in turn, top the results turned in by NEA V (1990 - $199MM). Regardless, industry practice should not leave fund extensions up to the personality of a preening, narcissistic GP already burdened with more time than sense, willing to saddle itself with such outsized, meaningless at best, and potentially harmful distractions. In the first weeks alone of its new $1.2BB Fund XI, CRV's drawdowns amounted to more than the 1.5 times the entire size of Fund VI. It bears repeating: the firm spent within mere weeks a greater sum out of just its newest fund alone (not counting the other active, large, quite young funds) than the total invested from this eleven years old partnership during its entire lifetime. Moral? Come to your senses! Get a life! Deal with your paranoia, cease the delusions, accept your place in the industry, congratulate yourself on superb (albeit deceptive) media-relations ROI, and move on. This shameless insecurity reveals CRV as a caricature of what it once was; nowadays, the firm is totally different -- people and profile -- from the days of Jack Neises and Rick Burnes, then later Don Fedderson. "Facts that are not frankly faced have a habit of stabbing us in the back." (Sir Harold Bowden). So, unfortunately, you can't look at the stellar history and make positive judgments about today's group. Too great a contrast. Apples vs. oranges. */See Also:/* *crv@InsiderVC.com* Copyright © 2015 All Rights Reserved This page reviewed and/or edited: Monday, 25 February 2002 12:13 AM