Having just last week sifted through its portfolio and evaluated the state of its 75 investments, Boston and Silicon Valley venture firm Sigma Partners is sure to look back on 2008 with pride, and maybe a little wistfulness.
A year ago, computer maker Dell Inc. closed its $1.38 billion acquisition of storage technology developer EqualLogic Inc. and provided Sigma with something it or any other venture capital firm will not likely experience again anytime soon: a 20 times return on its investment.
The deal, in fact, was the biggest acquisition of a venture capital-backed startup in 2008 and the largest ever all-cash purchase of a venture-backed technology startup.
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Beyond the deal having lined early EqualLogic investor Sigma
Partners' pockets with about $340 million, managing director Greg
Gretsch says there's a bigger lesson: Despite all the gloom over the
state of technology investments, it can pay off handsomely to continue
investing through a downturn.
In mid-2001, amid the wreckage of the burst technology bubble, Sigma
invested in EqualLogic's Series A round. Over the next six years, it
would sink a total of $17 million into the startup.
It stuck with the company through its mid-2002 Series B round, which
granted EqualLogic a lower valuation despite the fact it was hitting
all of its milestones.
"This tells us that now is a good time to be investing," says
Gretsch, who served on EqualLogic's board. "Entrepreneurs aren't
shutting off their brains, and we don't expect any exits for five to
eight years." Other investors included Focus Ventures, Charles River Ventures and TD Capital,
all of which also saw handsome returns from the Dell deal. The
transaction sent ripples through the data storage technology market,
causing similar companies to realize that to survive, they'd be best
served joining a larger company with a wider array of products and
services.
Hewlett-Packard Co. followed Dell's lead and acquired EqualLogic rival LeftHand Networks Inc. for $360 million in October, for example.
Being the first out of the blocks -- having inked its agreement for
EqualLogic back in the far rosier days of November 2007 -- Dell was
considered by some to have overpaid. But, according to Gretsch, the
computer company is quite pleased with its purchase.
"Anything anyone bought last January they paid too much for," he
says. "But I spoke with [Dell CEO] Michael Dell in December, and he
said they absolutely got a great asset. It's executing very well and
continuing to grow. Dell is very happy with EqualLogic." --O.D.
Despite the gloomy economy and lack of exits that will likely
continue through much of 2009, venture capitalists have something else
to cheer them up: One of their own has landed a big-time appointment in the Obama administration.
President Obama earlier this month tapped Julius Genachowski as
chairman of the Federal Communications Commission. Genachowski, who has
known Obama since they worked together as students on the Harvard Law
Review, has a wealth of experience in tech startups as an entrepreneur
and investor. He is managing director of venture capital firm Rock Creek Ventures, a special adviser to buyout firm General Atlantic Partners LLC and the co-founder of tech accelerator LaunchBox Digital. Previously, he was general counsel, head of business operations and a member of Barry Diller's office of the chairman at IAC/InterActiveCorp.
Genachowski was also a former senior aide to former FCC Chairman
Reed Hundt. Under Genachowski's leadership, the FCC will likely make
fast, affordable, open access to the Internet for everyone a high
priority.
He is also perceived as a foe of media consolidation. "This news made me smile a mile wide," blogged Union Square Ventures founder Fred Wilson, calling Genachowski "one of us." Other tech investors cheering the news include Spark Capital's Bijan Sabet and Betaworks' Andrew Weissman.
"A friend of tech and the Internet and the startup ecosystem running
the FCC," glows Wilson. "Just think about that and smile with me." -- M.K.F
