OVP Venture Partners, the Kirkland, WA-based venture firm that has invested $750 million in more than 125 high tech, biotech and clean energy companies in its history, won’t raise any new funds and is gradually winding down operations after almost 30 years in business, Xconomy has learned.
Three of OVP’s six managing directors—Mark Ashida, Lucinda Stewart, and Carl Weissman—are being let go at the end of 2012, says managing director Gerry Langeler. That leaves Langeler, Chad Waite, and Bill Funcannon as the three players left who will manage the remaining portfolio investments from OVP’s most recent fund, a $250 million investment pool that closed in February 2007. The remaining partners will no longer make new investments, but they will continue to watch over their existing portfolio companies for the next four to five years, and then the firm will close its doors, Langeler says.
“We love what we do. It’s been a fabulous ride for 30 years,” says Langeler, who joined the firm in 1992. “It’s hard to step away from something you love doing, but you have to think about the LPs (limited partners) and look them in the eye and say ‘I’m committed to this fund for another 12 years’ because that’s about how long it takes for a fund to mature.” Waite—an OVP managing director since 1987—and Langeler would be in their 70s by that point, they chose not to commit themselves that far into the future.
The other three partners will be going their separate ways. Weissman, the co-founder and CEO of Seattle-based Accelerator, is seeking to raise money to keep the biotech startup incubator going, and he’s considering an expansion to New York. Ashida, who serves on the board of the Seattle-based Institute for Systems Biology, says he hasn’t decided what he’ll do next. Stewart didn’t respond to an e-mailed request for comment about her plans.
“OVP was a great experience and I have great hopes for the investments we made,” Ashida said via e-mail. “Locally the one I am rooting for is Symform that I seeded 3-5 years ago and which is proving to be very disruptive in the area of cloud storage. It is too early to say what is next for me but I have gotten very positive encouragement from the community. Thank you, Seattle.”
OVP’s decision will clearly have an impact on the Northwest, where it has historically made about two-thirds of its investments in startups and young private companies. The firm, founded in 1983, has always been one of the few active local VC firms spreading money all over the region’s innovation community, betting on companies like DataSphere, NanoString Technologies, Symform, Talyst, Adapx, Allozyne, VLST, and EnerG2. Some of its greatest hits from the past include Rosetta Inpharmatics, Watchguard Technologies, and Seattle Genetics (NASDAQ: SGEN).
Bob Nelsen, a managing director at Arch Venture Partners in Seattle and a regular co-investor with OVP, says it’s a “huge loss” for the Northwest. “Chad Waite has been a force in driving early stage deals in the Northwest and is a true risk taker in numerous sectors, and Carl Weissman has been one of the key catalysts in early stage biotech in the region,” Nelsen says.
While age of the OVP insiders surely played a role in the decision, the firm also had to consider the probability of raising a new fund during a historic shrinkage in the venture capital industry. The venture industry has been reeling ever since the Great Recession struck in 2008, making it much tougher for its portfolio companies to go public, or command big-money acquisitions—the two traditional ways VCs generate liquid returns for their supporters. The Kauffman Foundation, a regular backer of venture firms, recently delivered a blistering critique of the VC industry and how it has essentially failed to deliver on its promise, as partners keep collecting what the foundation regards as excessive management fees.
OVP’s fourth venture fund, raised in 1997, had the good fortune of maturing during the dotcom bubble years, and it delivered a healthy 63.9 percent internal rate of return, according to data disclosed online by one of its limited partners, the Oregon Public Employees Retirement Fund. But OVP’s more recent funds that were raised in 2000, 2001 and 2007 have all lost money. Those funds have returned -16.7 percent, -18.6 percent, and -11.9 percent, respectively, according to the most recent data posted online by the Oregon Public Employees Retirement Fund.
Venture funds, because they are put into companies in their embryonic stages, are supposed to take 10 to 12 years to mature and generate returns. And because the 2007 vintage fund is still young, Langeler says he’s hopeful it could end up becoming OVP’s best ever. “Chad and I want to go out with our last fund being a very strong fund,” Langeler says.
Those who follow the venture business closely surely won’t be surprised to see OVP close down. It had high hopes for a home run with one of its portfolio companies—Mountain View, CA-based Complete Genomics (NASDAQ: GNOM)—that ended up being a major disappointment. That company went public in November 2010, and reached a high of $18.55 a share in June 2011, but securities regulations barred OVP from cashing out at the peak.
A few months after the peak, as OVP and other venture firms were free to begin selling stock, Complete Genomics saw its shares crash amid worries about a lack of demand for its genome sequencing service. OVP ended up liquidating much of its stake at low prices of $2.80 and $3.28 a share, as I first reported here in March. More recently, Complete Genomics ended up being acquired by BGI-Shenzhen for $117.6 million, after burning through more than $250 million of investment capital.
With OVP fading from view, the Northwest’s already thin ranks of active venture firms just got thinner. Seattle-based Madrona Venture Group, which specializes in tech investing, raised a new $300 million fund in June. Arch Venture Partners, a diversified fund with a Seattle office that invests more in life sciences and cleantech, raised its last $400 million fund in 2007. Seattle-based Frazier Healthcare Ventures, which leans more toward growth equity investing than traditional startups, is seeking to raise another $400 million fund. Seattle’s Voyager Capital, a tech specialist, is seeking to raise a new $125 million fund. And Bellevue, WA-based Ignition Partners, a tech investor, is reportedly looking to raise another $250 million fund.
Langeler concedes that the disappearance of OVP could make it harder for startups to raise capital in the Northwest, but he adds that he’s confident someone else will step up to fill the void. The combination of big ideas, and entrepreneurs with the skill to build great businesses, has consistently improved over the years in the Northwest, he says.
“Obviously we could leave a gap,” Langeler says. “But on the other hand, I believe that nature abhors vacuums. If there’s good opportunity there, other firms will spring up.”
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