Financial Times; Mar 6, 2002
GLOBAL INVESTING: Venture
capitalists look for outside help in a harsh climate
Funds are increasingly
calling on consulting companies as they find themselves in unfamiliar
territory, writes Alison Beard
Two years ago, at the height of
the internet boom, venture capitalists called Dick Strayer
to sort out their fast-growing portfolio companies. Mr Strayer, a management
consultant, was charged with turning a group of technology geeks
into a team.
Now, the venture capitalists are calling with a different job: they
need help themselves.
"The requirements for success are different now," said Mr
Strayer, chief executive of California-based Strayer Consulting.
"You have people that feel really confident and almost arrogant
about their ability and they're moving to a world that they haven't
been successful in yet. There are partners who were good at giving money
out but who aren't so good at rolling up their sleeves."
Venture funds have generated annualised returns of 54 per cent over
the last three years, according to the latest figures from Venture Economics.
But in the 12 months that ended last September, they lost more than
30 per cent.
Some portfolio companies have gone bankrupt, others have seen their
stock prices plunge and most are struggling to survive. The venture
capitalists, their leading investors, are shell-shocked.
"There were some really painful tragedies," Mr Strayer said,
and his first role is to be a counsellor. The formal consulting process
begins when he collects evaluations on each venture capitalist from
fellow partners, board members, executives in the firm's portfolio companies
"The funds are pretty unique in how they're structured... because
there's no hierarchy, so it's hard to get feedback," Mr Strayer
said. "You have four or eight or ten partners and they're all presumably
So far this year, more than a dozen firms have asked Mr Strayer for
this 360-degree feedback consultation. Fees vary, and Strayer Larcen
often accepts a limited partnership in the fund for its services. The
company's day rate is between Dollars 3,500 and Dollars 4,000.
After being evaluated, the venture capitalists are made to acknowledge
their weaknesses, from sloppy financial modelling to having too much
confidence in one industry, and ask for help. "How do you work
together and give away your ego and some of your turf?" Mr Strayer
said. "That's where I come in."
Some firms realise that all the partners are not created equal and
reorganise accordingly. "Some partners just don't have the skill
sets to jump in and help downsize . . . and make sales calls,"
Mr Strayer said. "The question is should we be paying them as much
as we do to the people who are up to their elbows 24 hours a day."
Mr Strayer would not give specific details on any of his clients, which
include Kleiner Perkins, Olympic Venture Partners and Alpine Ventures.
But he said that many had reduced bonuses or the percentage of fees
earned for partners who had an investing background but no operating
"The stronger firms have really faced up to this (in part because)
their investors have forced them to," Mr Strayer said. "Most
of our business is in venture groups now because they're saying 'We're
the focus, not our start-ups.'"
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