VentureBeat - Latest Comments in The bizarre case of Oak Investment Partners

Re: The bizarre case of Oak Investment Partners

James Garvey — Tue, 22 Dec 2009 03:49:08 -0000

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Re: The bizarre case of Oak Investment Partners

Concerned Pulix — Tue, 09 Jun 2009 21:16:57 -0000

Matt - this was a very interesting write up and one that actually requires a lot of further investigation. What is most ironic here is that the States invest in funds like Oak without knowing where their monies are actually spent. All someone like you needs to do is to get all the flight records of their two private jets - N990AK (99 marks the beginning of their dismal performance with fund 9 in 99) and N120AK (12 marks the last of their big funds - 12!). While the auto execs were heavily criticized for their use of private jets, Oak has more private jets per partner than most Fortune 100 companies in the US has jets!! Forget about assets per partner, Oak sets their own metrics for heights of arrogance. I wish you or someone would expose their unreal ways - they make the hedge fund managers of Wall Street look like innocent school teachers!

Re: The bizarre case of Oak Investment Partners

Amit Kanodia — Tue, 21 Apr 2009 10:46:31 -0000

Hi Matt - you make a great point. But as a student of the industry, I think your comment above actually is a very critical one. Typically early stage VCs put in monies in stages, Series A, then B etc. And they mark up the earlier rounds to the most recent round price (sometimes they mark down too). and those markups are all paper gains and to be meaningless. I only think of a markup when money shows up in my bank account! Now, Oak has left the VC business for all purposes or to a large extent. Most of their investments, they are the only investor and they dont have the Series B, C, D....phenomenon to artifically mark up their investments. So, I suspect a lot of their investments are at cost and dont have the artifical paper gains you refer to. I am sure they are in some of those kinds of club deals with later round markups (I would not know) but mostly I see Oak in investments where they are the sole investor these days (like their most recent investment in Clarient) versus in a staged or phased investments where they would benefit from these markups. At the end of the day, it is cash on cash return that should matter to investors and I think the proof is still in the pudding in the oven as far as Oak is concerned (and I dont know which way it will go) but you definitely rushed to judgment. Thank you again. You are a smart guy, obviously.

Re: The bizarre case of Oak Investment Partners

Matt Marshall — Tue, 21 Apr 2009 10:24:42 -0000

Hi Amit,
It's generally recognized that IRRs are reflective of a fund's overall direction after about five years (firms generally mark up the value of their portfolio companies as they make progress and raise money at higher valuations). Clearly, there are exceptions, but that's the rule. With such massive fund sizes, Oak will have to have some successes merely to break even, so i'd sincerely hope they have some solid companies in their portfolio - and I'm sure they do. True, the reference I made to Oak's deals was indeed selective, not doubt about it.

Re: The bizarre case of Oak Investment Partners

Amit Kanodia — Tue, 21 Apr 2009 10:03:43 -0000

Thank you for your quick response. Assuming you are on the west coast, you are up early!! Anyway, your willingness to engage in an open dialog is encouraging. I was only mentioning the 4 companies to balance your 4 examples, which to your point are also old investments - I tried to match the vintage of your examples with the ones I put up. Though I could argue that the jury is still out there on HuffPot (which I personally don't necessarily think was a smart investment, but who knows), Rearden Commerce, and Visto - 3 of your 4 examples - their destinities have not been proven as yet (who knows, one of them could even hit the cover off the ball, as they say!). Only 1 of your 4 examples is a done-deal. Anyway, as for future returns, one could look at their existing portfolio - I hear just great things about Demand Media (may be you could speak with Richard Rosenblatt, the charismatic CEO there), Kayak, RazorGator, eSolar, iHealth - each one of them could be a fund maker - and of course the details are in the details. As I said before, you should do a follow-up to this article and tell us what the CEOs of the existing Oak portfolio companies say about these guys. They have a large enough portfolio of existing companies (one thing I think you missed out on criticizing Oak for!) that you should be able to speak with a decent number (even if on a no-names basis) to get the real story behind their success / lack thereof - and hence the promise in the future / lack thereof. To judge the future based on one blow-up (BabyStyle) and 3 companies whose destinites are TBD, from a portfolio of hundreds of companies, is totally myopic or subjective. Also, to your point of IRR, I guess their biggest investments are not realized as yet, and hence held at cost (yielding a -0% IRR) and so to a math-challenged mind like mine, it would appear that the low IRR has more to do with arithmetic than anything else as yet. I am humble enough to think there is another side of the story that you have not reported on. Thank you for your openness again.

Re: The bizarre case of Oak Investment Partners

Matt Marshall — Tue, 21 Apr 2009 09:40:24 -0000

That's fair, but most of those great results would all be showing up in their fund IRRs, which we've reported on in the past (see my link in the story to past coverage, where I mention several of Oak's good investments). Gmarket is an exception, being a recent exit worth mentioning, and only four years old. But for the others, remember all of those companies are fairly mature and have been around for years, and we've reported on them in past stories. So fair enough, point taken, but that's mainly pointing to past, not future.

Re: The bizarre case of Oak Investment Partners

Amit Kanodia — Tue, 21 Apr 2009 09:32:39 -0000

Matt - your article made some interesting reading, but it was quite one-sided to be fair. Just as a case in point, you mentioned 4 of their troubled investments. To be fair, you avoided mentioning, say 4, of their outstanding investment successes I can readily think of. 1. Gmarket - Oak was the only early investor in this company that was recently acquired by eBay after kicking their backs in South Korea and going from zero to 60% market share in 4 years since Oak invested; 2. Athenahealth - the best performing IPO on 2007 on NASDAQ where Oak was the single largest investor as I understand; 3. aQuantive - Oak was an early investor in this company that was acquired by MSFT for $6B as someone else mentioned; and 4. TeleAtlas - one of only two global mapping companies, recently acquired by TomTom. Again, I am not involved with them but going by recent exits only. I cannot think of too many venture firms that have had that kind of success in the last decade, if you will. I think you would have served your readers better if you had actually done some research (even looking at their website) to give a balanced story rather than engaging a very one-sided, biased story. If the Oak partners did not speak with you, may be you could have just checked their investments that have been public successes and spoke with their CEOs at the very least. Good luck next time and I look forward to reports that are more balanced that this one!! Amit.

Re: The bizarre case of Oak Investment Partners

Matt Marshall — Mon, 20 Apr 2009 11:22:29 -0000

NW LP, not sure I understand what you're saying. Washington State is one of the only LPs that opens its records -- because of state sunshine laws. Most other LPs are private, so there's not a lot I can do. So we're going off the only information I can find. This is not cherry-picking.

Why not open up and tell us who you are?

Also, not sure what you mean about not being aware of benchmark data for VE. I'm quite aware of it, and addressed the question above. I think you're missing the point. Oak was smaller in its earlier the years -- it was tight and focused, and thus primed to do better, and especially in 1998, was well-timed for the boom. Oak's 1998 fund was a mere $101 million. Anyone should have made money back then. Companies with no profits, and barely any revenues were going public the following year. Then, Oak chose to raise a fund the following year, in 1999 for $1 billion. And then again in 2001, for $1.6 billion. It plowed all that money into companies that weren't going to do very well. It moved quickly to become a much larger fund, at a ridiculous pace. So yes, it's 1998 fund performed much better than Venture Economics' benchmark, but its contributions were tiny because it had a small fund. Contrast that to the lousy performance on those two later huge funds. Because its funds were larger than the average, the weak performance -- even if was in line with other funds -- is magnified all the more because of the sheer dollar amounts.

Re: The bizarre case of Oak Investment Partners

NW LP — Mon, 20 Apr 2009 10:37:12 -0000

@Matt - Why are you mixing Wash State's investment decisions (more in 1999 than 1998) with a villification of Oak? WSIB is just one LP in Oak. Please opine on Oak's entire investment history instead of cherry picking one LP or a few deals that have gone south.

Also, do you really author a blog titled Venture Beat and are not aware of benchmark data from Venture Economics? Makes me question all comments about the industry. Kinda like a sportswriter covering the Mariners asking what ERA stands for.

Re: The bizarre case of Oak Investment Partners

Matt Marshall — Sat, 18 Apr 2009 08:13:07 -0000

Data, and Jim L.,

You guys are ignoring the size of the investments. As reported, Washington state poured much more money into the 1999 fund than it did in to the 1998 fund. So while, while the 1998 fund did great, and the state made money ($20M on $16M invested), the state lost much more value on its 1999 investment (as of that story, it had lost $30 million in value on $57 million invested). In other words, you're emphasizing the greatness of the 1998 fund, but this is overshadowed by the fact that that fund was much smaller. More money was caught in the money losing funds.

Next, related to that, it's a little strange to argue support for a firm that is simply losing less money than another median firm, especially when the absolute amounts the firm is investing are so huge. Would you rather invest $10 and lose $15, or invest $2 and lose $4. You can play nice little games with these numbers. Even though my loss on the $2 was two-fold, and thus a greater multiple than the loss on the $10, I'd still prefer that two-fold loss because the dollar amounts are smaller.

Jim, you talk about the partners being very good people. I have no doubt they are. I'm sure they are professionals. This is not a piece about their personalities.

Re: The bizarre case of Oak Investment Partners

FastSize Review — Sat, 18 Apr 2009 03:58:19 -0000

Matt, great article. Sure, it has some conjecture, but this is the type of combined analysis and deep understanding that I love to see in VentureBeat. Keep up the good work and have a nice day!

Re: The bizarre case of Oak Investment Partners

Mark — Sat, 18 Apr 2009 03:38:53 -0000

Awesome story... this is the tip of the iceberg. I think NEA could become the single largest destroyer of capital in the history of silicon valley. It' s not just the biggest firms... keep digging Matt and you'll find many many more firms that continue to raise money despite the fact that they haven't had respectable returns in over a decade. We are talking about people's pension money here. What some of these firms are doing should be criminal.

Re: The bizarre case of Oak Investment Partners

Jim L. — Sat, 18 Apr 2009 02:14:51 -0000

Gotta agree with Data comments. Jim Kramer today was literally screaming about how Bogle (the Vanguard guy) was stupid recommending a diversified portfolio including stock index funds to individual investors because they were flat after ten years and individual investors would have been better off listening to him and picking individual stocks themselves and doing market timing based on his recommendations.
Looking at venture returns in a period when technology was in the doghouse (time periods ending last summer) is much the same. Pick the right (or in this case, wrong) endpoints and any returns look unimpressive on an absolute basis, and that's what you have done.
You have to look at peer rankings and at long term returns. I was very close to the two founding partners and the bright people they surrounded themselves with and when you realize that, generally, 10% of venture investments are total writeoffs, 80% plod along with very mediocre returns but the other 10% can have 20x or 40x or 100 x returns, it makes little sense to list four or five sour investments when all of your positive return comes from a few tremendous successes.
While I have not been involved with Oak for a while and Greenfield is retired, several of the other key partners are very good, if low key. They communicate with their partners, not the press. Always have and apparently still their policy.

Re: The bizarre case of Oak Investment Partners

Jim L. — Sat, 18 Apr 2009 02:06:58 -0000

Be glad you wife is contribution to CalSTRS; there will be money there at retirement because they are doing the diversifying for her and VC limited partnerships are just a small part of the pie. As for the "peek" a the perks, I doubt one-half of the Menlo School parents are in VC; more likely, in high tech generally. VC is a far cry from investment banking, the source of all of the toxic assets which have created our problems and the world's second oldest profession (whose practitioners lack only the higher moral character of those who participate in the oldest). Or commercial banking/consumer credit, the source of the subprime mess.

VC invests primarily in startup technology ventures, of course, which few are blaming for our problems today.

Re: The bizarre case of Oak Investment Partners

anon — Sat, 18 Apr 2009 00:02:35 -0000

Bravo. A very nice piece of reporting.

Re: The bizarre case of Oak Investment Partners

Data — Fri, 17 Apr 2009 22:33:40 -0000

It is Venture Economics data, same as most people use for industry analysis. If you don't have a subscription most B-school students or VCs should be able to pull it for you. I believe it is a self-reported sample but I don't know of any cleaner source (and self reporting would normally serve to inflate the benchmark, not understate it.)

Maybe I was too harsh in my language. I agree with what you're saying here overall about the VC industry and the fee structures. And I imagine Oak is just as faultable here as any though I don't know the specifics of their fees. As an aside, I would argue VC comp is on average more aligned with true risk-adjusted performance than either LBO comp or hedge fund comp but they're all problematic. And, yes, VC returns have been pitiful for a decade. But so have public equity returns, and no one is accusing public pension LP of malfeasance for investing in big mutual funds.

What I object to the tone of the article that seems to implicitly impugn the character of the GPs and LPs involved, not just the results. The idea that the only way Oak could have raised their past funds was through "smug relationships" or LP laziness doesn't hold water for me on the basis of the info you've provided. As of 2004, the last Oak fund you report (I don't have their return data only the industry benchmarks so I was just using your figures), one would have seen one great fund in 1998, and probably two that were average or above but too early to tell. It seems what should happen is now happening -- they are being forced to downsize their next fund significantly (and I'd imagine accept tougher terms, too).

The deals you list also seem to be one-sided. Oak has had a few big wins in that time period too, but somehow they weren't mentioned. One could write a similar article slamming Mike Moritz with a lot of conjecture about his big capital base (Sequoia has a lot of money under management, too, if you add up all their vehicles) and mentioning Webvan but it would be way off target without mentioning Google. I'm not saying I'd invest in Oak, but this article doesn't seem neutral or comprehensive.

Re: The bizarre case of Oak Investment Partners

An LP — Fri, 17 Apr 2009 20:51:26 -0000

Data,
Just because someone is top quartile doesn't mean they've done a good job. Top quartile is a fiction that allows people to claim that they're the tallest midget and then give themselves false kudos. Another LP blogged about this fallacy a while back:
http://www.lp2dot0.com/blog...
So indeed, Matt's article is an indictment of the industry, but the Oak guys have been among the most cynical of its practitioners.

Re: The bizarre case of Oak Investment Partners

Matt Marshall — Fri, 17 Apr 2009 19:13:55 -0000

Data,

Where are you getting the data? Is it self-reported? Is it comprehensive?
Do you have a name?

Yes, it certainly is an indictment of the VC industry overall.
And what does it mean to be barely above average in an industry that is awful? I think that's a point I was trying to make. Many firms are going under, and here's a firm producing very mediocre returns getting backed year after year -- in part by public money.

Re: The bizarre case of Oak Investment Partners

GoodMojo — Fri, 17 Apr 2009 18:50:37 -0000

They say: tell me your friends and I'll tell you who you are.
In the VC world, it's: tell me who you invest with and I'll forecast what your IRR will be.

Check up Oak's link up with Worldview, Crescendo and others over the last ten years.
Any surprise why Oak's returns will be any different from their co-investors (who are all in the deep red)? Who had bad mojo and whose bad mojo affected who else...is left for homework. LPs already voted on that by not investing in funds started by some of those named partnerships so maybe Oak claimed it wasn't their bad mojo but someone else's.

To the list of bad investments noted in the article add those companies Oak invested along with Worldview (OnStor? Commverge? 3Par?...) and others.

Re: The bizarre case of Oak Investment Partners

Matt Bowman — Fri, 17 Apr 2009 18:48:16 -0000

Matt,
Thanks for letting us know where those fat tax checks we all just wrote are going.

You've got a mission and I owe you a drink.

Re: The bizarre case of Oak Investment Partners

bob — Fri, 17 Apr 2009 17:23:53 -0000

nice article; here's a post on the Venture Capital supply chain that fills in a few definitions as well.
http://kipmcc.wordpress.com...

Re: The bizarre case of Oak Investment Partners

Don Jones — Fri, 17 Apr 2009 17:22:20 -0000

Many VC firms enjoyed the flood of liquidity over the past 10 years and it's true that some are better at raising funds than investing them, but over time economic realities will force changes in relationships between GPs and LPs. Excesses will be squeezed out of the system and it will return to equilibrium in time.

Re: The bizarre case of Oak Investment Partners

Data — Fri, 17 Apr 2009 16:55:43 -0000

Is this what passes for "reporting" these days? What a steaming pile of crap! I don't respect Oak any more than the next guy but this piece is completely full of it. I would certainly hope that "Venturebeat" subscribes to fund benchmark data, and assuming they do, they would know (it took me all of 30 seconds to do the query) the following

1998: Median=1.8% Top Quartile=11% Oak=55% -> Way into Top Quartile
1999: Median=-6.6% Top Quartile=0.8% Oak=-4.2 -> 2nd quartile (above average)
2001: Median=1.5% Top Quartile=9.6% Oak=1% -> just below median
2004: Median=-0.7% Top Quartile=12.5% Oak=5% -> 2nd quartile (above average)

So Venturebeat must know that Oak was above average on 3 of 4 funds and just below on one, way above on the last. (Either that or you are negligent for not bothering to check.) Put another way, statistically, Oak's returns are significantly above average for the industry. Yet you still chose to present the data the way you did.

Granted, I wouldn't think that would qualify one to raise the largest funds in the industry, but isn't this data really more of an indictment of the VC industry overall than of Oak? You certainly wouldn't know it from this article. You have lost all credibility with me.

Re: The bizarre case of Oak Investment Partners

Josh — Fri, 17 Apr 2009 16:37:46 -0000

I guess I am in the minority here. This seems like all conjecture and very little reporting. There is no first hand information here and a lot of speculation as to the value of the portfolio. Since a fund is a 10 year investment, it's not uncommon to see low IRRs from recent funds. It would be helpful to see Oak's performance against funds in the same vintage year so people know whether 5% or 1% IRR is above or below average. Just because someone doesn't call you back doesn't mean that you get to speculate as to what's going on and report it largely as fact. Maybe bad things are afoot, maybe not. This article doesn't help inform my opinion. But like I said, I seem to be the only one who sees it this way.

Re: The bizarre case of Oak Investment Partners

Economist — Fri, 17 Apr 2009 16:29:06 -0000

This is just so amazing! Investigative reporters should check into this relationship between State of Washington Investment Board and Oak Investment Partners. WSJ just reported Steven Rattner of Quadrangle Group involved in inquiry on fees. Even if no wrongdoings, it is definitely irresponsible for State of Washington Investment Board to invest some funds with poor returns.