Click here for printer friendly page

North America: January 2003

Yale and Stanford cut private equity allocation, Florida seeks venture capital and distressed debt investments, Mobius and Mohr Davidow reduce fund sizes, Hamilton Lane up for sale…

US-based Hamilton Lane looking for buyer
US-based global private equity investment services firm Hamilton Lane Advisors is reportedly seeking a buyer for around $100m. The current front-runner is understood to be Switzerland-based Partners Group. It is understood that the firm would prefer a financial institution as a buyer, but although Morgan Stanley considered making an offer, it was not possible to agree a price.
The Deal 29.1.03

US venture investment in 2002 declines almost 50 per cent year on year
There was further evidence of the disastrous year venture capitalists and start-ups in the US endured in 2002 with the publication of the latest PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree Survey. Venture investment levels almost halved from $41.3bn in 2001 to $21.2bn. Investment levels are now below the total for 1998, when $21.6bn was invested in new companies. In terms of sector breakdown, US venture capitalists invested increasingly in the life sciences in 2002. The sector accounted for $4.7bn, around 22 per cent of all venture investment during the year. Life sciences also increased in its attraction throughout the year, ending on a positive note with an increase of 15 per cent from the third quarter to the fourth. It was bad news for first-time financings, though, as the number of companies receiving start-up financing fell 35 per cent to just 756 in the US. Venture capitalists were concentrating on keeping their portfolio companies alive with greater attention paid to follow-on financing.
AltAssets 28.1.03

Ohio slows its investment pace
In response to GPs' slower investment rate over recent months, the Public Employees' Retirement System of Ohio has decided to commit less to private equity in the next few years than originally planned. The $54bn plan had decided to commit $1bn annually up to 2006 as part of its strategy to reach a target allocation of four per cent. But, faced with the fact that general partners are taking far longer than expected to deploy their capital, Ohio has taken the decision to cut its yearly private equity commitments to $600m. It will continue with its strategy to date of investing large amounts in relatively few funds.
The Private Equity Analyst January 2003

US venture investment drops 44 per cent in 2002
Venture investment value in the US almost halved in 2002 compared with the previous year, according to new figures from VentureOne and Ernst & Young. Venture-backed companies attracted $19.4bn in 2,056 financing rounds in 2002 compared with $34.6bn in 3,034 financing rounds in 2001. The year is still ranked fourth in the history of venture investment in the US, said VentureOne, but there was little sign of a let-up in the continuing decline. Investment levels were down in the fourth quarter of 2002, with $4bn invested in 424 transactions, compared to 501 transactions recorded in the third quarter worth $4.2bn. There was a significant fall in the proportion of initial investments made in the US in 2002. Some 30 per cent of recorded financings were first-time financings during the period, comparing unfavourably with 2001, when 37 per cent were initial investments.
AltAssets 27.1.03

US returns data show continued misery for private equity firms, says one survey…
The latest batch of US private equity performance data has confirmed the seriousness of the present downturn as one of the worst ever to face the industry. Figures from the NVCA and Venture Economics showed short-term returns are still deteriorating, even if the rate of decline has slowed. One-year returns for venture capital and private equity were negative 22.3 per cent and negative 12.3 per cent respectively for the period ending September 30, compared with negative 27.9 per cent and negative 16.5 per cent at the end of the preceding quarter. This gentle improvement in short-term returns, however, disguised a worsening in medium-term returns - a more meaningful measure of performance in the asset class. Three-year returns for venture and private equity were 15.1 per cent and 1.0 per cent respectively, compared with 26.0 per cent and 5.4 per cent in the previous quarter.
AltAssets 15.1.03

…short-term US venture capital returns show gentle improvement, says another
Short-term returns from US venture capital funds posted a microscopic improvement in the quarter to the end of September 2002 but remained deeply mired in negative territory, according to the latest figures from Cambridge Associates. The net return on US venture capital funds for Q3 2002 was minus 9.1 per cent, above the previous quarter's minus 10.3 per cent; while yearly net return stood at minus 29.4 per cent, a slight increase on the previous quarter's yearly net return of minus 35.8 per cent. But the figures were still below the one-year S&P 500 return of minus 20.5 per cent and the NASDAQ Composite return of minus 21.8 per cent. The US private equity industry as a whole saw a drop in returns. Net returns for the third quarter stood at minus 5.2 per cent, a fall from the previous quarter's minus 3.2 per cent. The annual net return for US private equity funds in Q3 was minus 9.2 per cent, which is above the comparable S&P 500 return, said Cambridge Associates.
AltAssets 13.1.03

Yale University to cut private equity allocation…
Yale University Endowment has slashed its allocation to private equity from 25 per cent to 17.5 per cent in the expectation that risk-adjusted returns from the asset class will deteriorate over the next few years. David Swensen, Yale's chief investment officer, says he thinks the risks of private equity investing are increasing while the prospective rewards are set to shrink. The news of Yale's decision to reduce its allocation to private equity comes as little surprise. Swensen signalled that this might be the outcome of an overall asset allocation review when he spoke at the European Private Equity and Venture Capital Association's International Investor conference in March last year.
Financial News 6.1.03

…as is Stanford
Stanford University has followed Yale's lead by deciding to cut its allocation to private equity. The endowment has announced that it is to invest just ten per cent of its assets in private equity - down from its previous target allocation of 17 per cent. Its portfolio consists mainly of venture capital funds and the reduction is reportedly a result of losses it has sustained in the asset class. Stanford said that it believed private equity would be less attractive in the future than it has previously been.
The Private Equity Analyst January 2003

US universities reduce their venture capital investments
US university endowment funds invested less in venture capital last year than in 2001, according to a study by the US National Association of College and University Business Officers. The 39 endowments with over $1bn in assets committed 3.9 per cent of their capital to VC funds in 2002; the figure for the previous year was 6.2 per cent, itself half the amount invested in 2000. Many of them have suffered, along with other financial institutions, from the continued bear market. The study indicated that endowments recognised the need for investing in alternative assets in order to boost their returns, but found that many favoured hedge funds and property over venture capital last year.
Financial News 27 January-2 February 2003

Value of US venture investment fell 46 per cent in 2002
The value of US venture capital investment fell nearly 50 per cent in 2002. Private companies raised $20.3bn through 2,088 financings, compared with $37.7bn in 3,226 rounds in 2001. The figures simply confirm the scale of the downturn in the venture capital industry that has followed the implosion of global technology markets. There remains little reason to expect an imminent improvement in conditions. Many US venture capital firms still find themselves with more money than they can productively invest over the anticipated lifetime of their fund and the trend of handing cash back to investors is expected to continue through 2003.
VentureWire 7.1.03

US venture firms raise $15bn in 2002 - a 50 per cent drop on 2001
US venture capital fundraising continued its downward spiral in 2002, as investors remain wary of the sector in an increasingly uncertain economic environment, according to VentureWire figures. Some 83 funds closed with commitments totalling $15bn in 2002, compared to 129 venture funds closing with $36bn in 2001. The fourth quarter proved more successful in fundraising terms than the third. Some 15 funds raised $3.4bn in the fourth quarter, compared with the third quarter's meagre $1.1bn raised by 13 funds. The largest fund of the year, MPM Capital's $900m Bioventures III, held its final close in December.
VentureWire 13.1.03

JP Morgan Partners announces operating losses of $789m for 2002
The struggling private equity division of JP Morgan Chase & Co has announced its yearly results, with operating losses of $789m. The loss, while significant, represents a marginal improvement on JP Morgan Partners' $1.12bn loss in 2001. Total net private equity losses in the fourth quarter of 2002 stood at $53m, said JP Morgan Chase in a statement, as compared to losses of $299m in the previous quarter and $398m in the same period in 2001.
AltAssets 23.1.03

Norwest Venture Partners shuts Wellesley office
Norwest Venture Partners has announced the closure of its Wellesley, Massachusetts, office. The firm is headquartered in Palo Alto and has an office in Minneapolis, but it said that it would continue working with its portfolio companies that are based in Boston. Only one Norwest partner had been working from the Wellesley office, Ernest Parizeau, and he will now work from home.
VentureWire 7.1.03

US's Mohr, Davidow Ventures slashes fund size again, closes Seattle office
Mohr, Davidow Ventures, a Menlo Park-based venture capital firm, is cutting its seventh fund for the second time. Mohr, Davidow partner Nancy Schoendorf has reportedly announced the reduction of Fund VII, which originally closed in under six months in December 2000 with $850m. In January 2002 MDV announced its decision to hand back $200m to investors, citing the fall in start-up valuations. Fund VII has now been reduced by another $200m to $450m. Schoendorf also announced the closure of MDV's Seattle office. MDV partner Bill Ericson is to move to Menlo Park.
AltAssets 23.1.03

Florida to seek venture capital and distressed debt funds
The $93bn Florida Sate Board of Administration pension fund has said it is to start investing more in venture capital and distressed debt funds. It has earmarked $300m to commit to a fund of funds manager to build a venture capital portfolio and has decided to invest a similar amount in distressed debt funds. The pension fund has around $3bn invested in private equity of which the vast majority has been committed to buy-out funds. The plan now intends to allocate ten per cent of its private equity portfolio to venture capital.
The Private Equity Analyst January 2003

US M&A market value at its lowest since 1995, IPO outlook grim
The US M&A market spent the whole of 2002 in the doldrums, according to figures released by VentureOne/The Private Equity Analyst. The total amount paid in mergers and acquisitions was just $9.7bn for 325 transactions, a modest 17 per cent fall on the 390 transactions in 2001 but a much bigger 55 per cent fall in value from $21.5bn. VentureOne said that the last time the M&A market value was so low was in 1995. The median deal value in 2002 stood at $19m, compared with $27m in 2001. The IPO market fared little better. The number of IPOs fell marginally from 21 in 2001 to 19 in 2002, with the amount raised falling to $1.6bn in 2002 from $1.7bn in 2001. By way of contrast, the amount raised through IPO in 1998, before the effects of the tech bubble began to be felt, was $3.7bn.
AltAssets 7.1.03

Austin Ventures in restructuring move
Texas-based Austin Ventures has restructured its firm by doing away with three senior positions. Stephen Strauss, a former general partner and Rob Adams, a partner, have both become venture partners. Ross Cockrel, who was also a general partner, has said that he is as yet undecided about whether he will stay at the firm. Austin said the move was a way of ensuring that it could focus on its portfolio companies and spend more time identifying new deals. The reorganisation comes a few months after Austin decided to cut the size of its eighth fund from $1.5bn to $830m.
VentureWire 21.1.03

Small recovery in US Q4 venture-backed IPOs but 2002 still well below '97 levels
US venture-backed IPOs staged an unremarkable recovery in the fourth quarter but were nowhere near enough to rescue 2002 as a whole from being the slowest year since at least 1997. There were four IPOs in the fourth quarter, compared with just one in the third. The total for 2002 was a miserly 22, compared with 35 in 2001 and a peak of 233 in 1999. The total value was $1.9bn in 2002, compared with $2.9bn in 2001 and a peak of $21.1bn in 2000. The year's IPOs were spread across a number of sectors, without any clear leader. There were five software offerings, four medical device offerings, three for healthcare services, and two for biotechnology companies.
AltAssets 3.1.03

US Mobius Venture Capital reduces size of Fund IV by $250m
California-based Mobius Venture Capital, a technology-focused firm sponsored by Japanese Softbank Corporation, has joined the growing queue of venture firms hoping to regain investor confidence by handing back money to limited partners. Mobius has reduced the size of its $1.5bn Fund VI by about 17 per cent, handing around $250m back to limited partners, according. Mobius focuses primarily on early-stage investments but will consider later-stage deals, in which it is prepared to invest as much as $50m to $100m.
VentureWire 21.1.03