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Stephen N. Lisson

Stephen N. Lisson

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Washington Post | Steve Lisson | Stephen N. Lisson | New Enterprise Is Huge and Proud of It

Steve Lisson Austin TX Stephen N. Lisson Austin TX Steve Lisson Austin Texas Stephen N. Lisson Austin TexasNew Enterprise Is Huge and Proud of It By Terence O’Hara
Monday, December 6, 2004; Page E01
Peter J. Barris runs the biggest stand-alone venture capital operation in the world.
His firm, New Enterprise Associates, sailed through 2002-03, the nuclear winter
of venture investing, with relative ease. Nearly every technology entrepreneur worth
his salt would put NEA near the top of his list of firms he’d most like to raise money
Yet Barris and other longtime NEA partners continue to hear criticism from within
their industry that NEA’s girth is a handicap, that NEA has strayed from the one true
swashbuckling venture capital faith and become –institutional.
Barris has heard this criticism –that NEA is too big and spread out to create the
home-run investments that put managers of NEA’s more romantic, smaller rivals on
the cover of business magazines. He has a well-practiced response.
“I understand the question, or the criticism, at a philosophical level,” Barris said last
week. “But the empirical data don’t support it. The numbers don’t lie.”
Barris, who is based in Reston, became the Baltimore firm’s sole managing general
partner in 1999 after serving three years as part of a management troika. Since then,
NEA has indeed performed better than the vast majority of venture capital firms,
although not at the level of the highest-performing firms that manage much smaller
amounts of money.
“I would argue that size is an advantage,” he said. “We have a superior network of
entrepreneurs that have done business with us for years. We have the capital to see
an investment all the way through. We have the domain knowledge to match any
fund. And we have a presence on both coasts.”
“And,” he said, “we perform.”
NEA has 11 venture funds, three of them raised since 1999. None of the three funds was in the black at
mid-year. According to the California Public Employees’ Retirement System (Calpers), which invested in the
1999 fund NEA IX and 2000′s NEA X, those funds had an annualized internal rate of return of minus 24
percent and minus 0.9 percent, respectively, on June 30. Those numbers may not prove much, however: It’s a  rare fund from those years that has a positive return, and there is ample time in which to realize a profit,
which could be substantial. It takes up to 10 years to determine a venture fund’s final rate of return.
NEA IX is far and away NEA’s worst performer. “Not our most proud fund,” Barris said. NEA IX had 90
percent of its capital in technology firms, mostly telecom-related investments, Barris said. For early-stage
1999 funds like NEA IX, break-even is considered excellent.
NEA X, the firm’ s biggest, is performing substantially better than 75 percent of all other funds raised in 2000.
Barris said that since June 30, it has moved into positive territory.
Discussions with NEA limited partners –institutions and rich people who invest in NEA’s funds –and others in the industry who follow NEA closely reveal a common theme: NEA has become a better-than-average
venture shop, and is now big enough so that description means real money. On average, its portfolio
companies have a better chance of returning money to NEA’s investors than portfolio companies of other
firms. On average, it’s as good a bet as any for an investor who wants to play in venture capital. And for
institutional investors such as Calpers and other big money managers, that’s as good as it gets. They’ve thrown money at NEA in the past four years.
“Their structure enables them to handle large amounts of money,” said Edward J. Mathias, a managing
director in Carlyle Group’s venture capital business who helped NEA’s founders when they started the firm
in 1978. “An institutional investor wanting to invest $25 million can do so with NEA with some assurance
that they can have above-average –not hugely above-average –but above-average returns. They have a high batting average. They hit a lot of doubles instead of a few home runs.”
That may sound like feint praise, but Mathias is a staunch admirer of NEA and its people. Hitting a lot of
doubles in venture capital is no easy feat, he said.
Not everyone is as big a fan. Steve Lisson, the editor of, takes a dim view of NEA’s size.
“Larger funds can’t produce the kinds of returns of smaller funds,” said Lisson, whose company provides
analysis of and statistics on venture fund performance and management practices. “Returns vary inversely
with money under management, because the larger the fund, the less impact one monster hit will have on its
NEA X is the largest VC fund ever. It raised $2.3 billion from its limited partners in 2000. The firm’s latest
fund, NEA XI, stopped raising money a year ago at $1.1 billion. Most of the largest non-NEA early-stage
venture funds max out at $350 million, and some more prominent venture capital firms would not know what
to do with that much. Novak Biddle Venture Partners, a Bethesda firm that has probably had the most
successful run of any local venture firm in 2004, raised a $150 million fund this year, then turned investors
away. Novak Biddle Partners III, a relatively small fund raised at roughly the same time as NEA X, was up
about 6 percent as of Sept. 30.
Managers of funds the size of NEA’s, Lisson said, inevitably have to do more later-stage and follow-on deals
because the universe of the best early-stage deals, which provide the biggest risk-return, is necessarily finite.
The most profitable funds are the ones that focus solely on the earliest-stage companies, and spend lots of
time and money on those companies at their birth, Lisson said. If NEA invested all of the $1.1 billion in NEA
XI in such small, time-consuming investments, it would need a heck of a lot more people than the 37
partners, venture partners and principals it has now.
To take an extreme example, think of Google Inc., whose early venture backers made billions of dollars when the company went public this year. NEA has financed more than 370 companies, and has a lot of big winners
in its huge portfolio, but none would compare with Google.
Barris disputes the notion that NEA is forced to do more later-stage, less-profitable deals. “As our funds have increased in size, the percentage of early-stage, start-up deals as a percent of our total has grown, not shrunk,” he said.
Institutional investors are more than comfortable putting money into NEA. Its performance, they say, is not
tied to one deal, and the firm’s track record over more than two decades speaks for itself. NEA’s first eight
funds, the last of which closed in 1998, have made huge amounts of money. NEA VIII, a $560 million fund,
earned an annualized internal rate of return of 168 percent.
Barris said NEA’s cost structure is distinctive in several ways. Most venture capital fund managers charge a percentage of the fund’s size to cover their expenses, typically 2 percent of a fund’s capital. NEA doesn’t do
that; instead, it a budget of expenses expected to cover the costs of running the fund, including salaries, that
are then approved by a representative board of limited partners. For a large fund, that sharply reduces the
costs to the limited partners.
“Limited partners love this,” Mathias said.
Calpers, one of the most active investors in private equity funds, committed $75 million to NEA X, one of the 10 largest investments it has made in a single venture fund.
Most venture funds split the profits of a fund, the most typical split being 80 percent going to limited partners
and 20 percent going to the fund’s managers. NEA, Barris said, makes the split 70-30.
Inside the firm, profits from a deal are spread out across the partnership; no one partner takes more than
another in a single deal. That promotes a team atmosphere that is necessary in running a big fund, Barris said.
In most funds, a partner who leads a successful deal gets a bigger cut of the profits than other partners.
The result, Mathias said, is less the amalgam of egotists seen at many venture capital firms than a consortium
of super-smart people trying to make a lot of money. “It’s not a superstar kind of firm,” he said.
Although NEA has more money under management than any other stand-alone venture capital firm –some
Wall Street private equity firms that do venture investing have bigger funds, but tend to engage as well in
leveraged buyouts and hedge investing –Barris said there’s no prospect for his firm becoming dominant in
the venture capital world.
“The industry has just gotten more competitive, not less,” Barris said. “Even with our huge funds, we still
have only 2 percent of the total amount of VC funds under management. In this business, it’s not who has the
most money but who has the most expertise that matters.”
And is NEA an “institution,” that staid word that makes many small venture capital firms shudder?
“I don’t know what the definition of institutional is,” Barris said. “I think we’ve gone farther than most firms
in institutionalizing what has been a cottage industry. We employ some professional management techniques
and policies. But because we started the firm on both coasts, we’ve had those things from the beginning. So I
don’t think we’ve changed much as we’ve gotten bigger.”
Terence O’Hara’s e-mail address is
© 2004 The Washington Post Company
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Friday, November 29, 2013


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What Goes Up:
After soaring, this year’s IPOs have returned to earth

By Jack Willoughby12/11/2000
Page 35
(Copyright (c) 2000, Dow Jones & Company, Inc.)
Much of the cleanup remains to be done. Many famous venture capital firms are stuck with huge amounts of devalued stock. “Most of those triple-digit returns that venture-capital firms are so fond of reporting will never materialize because they are not based on reality,” contends Stephen N. (Steve) Lisson, Austin-based editor of, which tracks performance. “Sure, the fallout has been gruesome, but much of its effect still remains hidden. Even today many VC funds are still reluctant to write down their investments because they want to keep attracting new capital.”
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Matrix Edges Kleiner

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Matrix Edges Kleiner
by Paul Shread
January 29, 2001–Kleiner Perkins Caufield & Byers and Matrix Partners are considered the cream of the crop among venture capital firms, the kind of VCs that limited partners are fortunate to be able to invest their money with.
So compliments paid, we set out to find out which was better.
Using the data of Steve Lisson, editor of, who tracks VCs’ performance and considers Matrix and Kleiner the top VCs, we applied a metric suggested by former Flatiron partner Dan Malven, which we will call the “Malven Metric.”
Malven suggested the metric after our piece comparing Kleiner’s performance in the IPO market last year with four other firms. In short, we divide overall performance by the number of partners, thus measuring wealth created per partner.
Malven cautions that that measure of performance could be skewed if each partner at one firm has a lot more to invest than partners at another firm, but Kleiner and Matrix appear pretty evenly matched. Matrix IV in 1995 was a $125 million fund (and had distributed 11 times that amount to its limited partners by the middle of last year, according to Lisson), and Matrix V in 1998 was a $200 million fund that had already distributed four times its LPs’ capital by mid-2000. Using the conservative figure of five partners during the time that 2000 IPOs were being funded, that means Matrix partners had $65 million each to work with. (We did not include Matrix VI, a $304 million fund that was only 30% invested as of June 30 last year.)
Kleiner VIII in 1996 was a $299 million fund that had returned 12 times its LPs’ capital by mid-2000, according to Lisson. Kleiner IX in 1999 was a $460 million fund that was 80% invested by mid-2000. Using the conservative figure of 13 partners, Kleiner partners had $58 million each to work with.
Now on to the 2000 results. Ten of Kleiner’s companies went public in 2000 (0.77 IPO per partner), compared to 4 for Matrix (0.80 IPO per partner). Kleiner’s stake in those companies was worth about $2.3 billion when the lock-up period expired (one company, Cosine Communications, is still in lock-up, and Kleiner’s stake in the company is worth about $100 million). Matrix’s stake in its four IPOs was worth about $1.6 billion when they came out of lock-up. That gives Matrix a per-partner return of $320 million, and Kleiner $177 million, giving the edge in per-partner wealth creation to Matrix.
A few caveats on those results. First, we measured performance in the IPO market only; we did not look at acquisitions, the number of which often exceeds IPOs in a given year. Second, Kleiner has two health care partners, according to Malven. Since health care companies had a tough year in the IPO market last year (Kleiner had no health care IPOs), reporting the results based on IT partners only raises Kleiner’s per-partner wealth creation to $209 million. We certainly want our top VCs to focus on the future of health care regardless of market conditions, and there’s been quite a debate going on within the venture capital industry about IT versus health care investing. The third caveat is that Kleiner IX is the newest of the funds measured, so that too could give Matrix an edge. But don’t feel too bad for Kleiner; according to Lisson, 6-year-old Kleiner VII was the best-performing venture fund last year, still riding high on its monster hit Juniper Networks (NASDAQ:JNPR). That fund has returned more than 20 times its limited partners’ capital.
Matrix’s big hit of 2000 was Arrowpoint Communications, which netted Matrix $1 billion when it was acquired by Cisco (Nasdaq:CSCO) in June. Kleiner had holdings in three IPOs that were worth $500 million or more when they came out of lock up: ONI Systems (Nasdaq:ONIS), Handspring (Nasdaq:HAND) and Corvis (Nasdaq:CORV).
It’s not clear when or if the VCs sold shares in the IPOs. Cisco’s stock, for example, has declined almost 40% since the Arrowpoint deal closed. Kleiner’s biggest winners have held their value since the lock-up period expired, but both companies had holdings that declined substantially from their lock-up expiration price.
Both firms also had about $2 billion each in 1999 IPOs that came out of lock-up in 2000, giving Matrix the “Malven Metric” edge there too.
But as Lisson pointed out, “This is splitting hairs amidst the pinnacle of the field. A fun, interesting and worthwhile analysis, but the distinction makes no difference to investors in these funds. The amounts of money involved are trivial when viewed in context, the venture capital segment in the alternatives portion of an entire portfolio. Nonetheless, the LPs of both Kleiner and Matrix can thank their lucky stars to be in these funds. It is amazing how these and a few other elite firms can put so much distance between themselves and the rest of field, repeatedly, in bad times as well as good.”
And finally, a follow-up to last week’s column on Summit Partners, the most recent firm to join the elite $2 billion fund club. Lisson had this to say of Summit: “As a private equity investor, Summit can outperform some early-stage VCs, the reverse of how it’s supposed to work. Now that’s a firm where unquestionably ‘there’s something in the water’ consistently over the years.”
Corey Ostman of Alert-IPO and Mary Evelyn Arnold of VC Buzz provided research for this article.
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V I R G I N I A :
John Marshall Courts Building
400 North Ninth Street
STEPHEN N. LISSON,                                                                               )
Petitioner,                  )
v.                                                                                 )   Case No.: HQ-2029-4
VIRGINIA RETIREMENT SYSTEM                      )
and                                                                             )
WILLIAM H. LEIGHTY,                                            )
Respondents.           )
On the 30th day of October, 2001, came the parties in person and by counsel upon the Petition; upon the Grounds of Defense; upon the Demurrers; upon evidence heard ore tenus; upon the representation of the parties that a settlement had been reached and was argued by counsel.
UPON CONSIDERATION WHEREOF, the Court finds that Plaintiff’s Petition is sufficient to state a cause of action; that the Demurrers should be overruled; that the parties have arrived at a settlement whereby:  (1) Respondents have agreed to pay to Petitioner the sum of Seven Thousand Dollars and no/100 ($7,000.00); (2) the Petitioner has agreed to a dismissal with prejudice of all of his outstanding claims against Respondents; and (3) Respondents have agreed that the dismissal of claims by Petitioner shall not prejudice any right he has or may have to obtain documents from Respondents subsequent to October 30, 2001, whether such requests for documents be for the same documents previously requested or documents similar thereto or documents of any nature whatesoever.

Accordingly, it is ORDERED that this cause be and the same is hereby dismissed with prejudice;
And this cause is hereby removed from the docket and placed among the ended causes.
ENTER:     /     /
We Ask For This:
Larry A. Pochucha, Esquire
Attorney for Stephen N. Lisson
VSB No. 15674
5206 Markel Road
P.O. Box 11787
Richmond, Virginia  23230
(804) 285-7000
Facsimile: (804) 285-2849
Michael Jackson, Esquire
Attorney for Virginia Retirement System
Assistant Attorney General
State of Virginia
900 E. Main Street
Richmond, Virginia 23219
(804) 786-6055
Facsimile: (804) 786-0781

Robert A. Dybing, Esquire
Attorney for William H. Leighty
Shuford, Rubin & Gibney, P.C.
P.O. Box 675
Suite 1250, Seven Hundred Building
Richmond, Virginia 23218
Office (804) 648-4442
Telefax (804) 648-4450
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Rumors of Benchmark's Demise Greatly Exaggerated

For weeks, rumors have been circulating in the VC community that Benchmark Capital's third fund, Benchmark III, was in trouble, hit hard by losses in e-commerce companies like

Benchmark denies the rumors, and its limited partners say they never received the rumored letter that the fund was in trouble. An analysis of Benchmark's portfolio appears to back up the firm, which despite the rumors, may not just be surviving, but thriving.

Benchmark declined to discuss details, but the firm's holdings as of June 30 were provided by Steve Lisson, the editor of, who tracks the performance of leading venture firms for high-paying clients.

At first glance, Benchmark III had its share of overvalued B2C e-commerce firms like (Nasdaq:FLWS) and was the fund's biggest investment, at $18.9 million, and had been marked down to $8.1 million on June 30. The stock price has declined about 30% since then. "There are many private scenarios just like this public one, whereby even if the company can be kept afloat long enough to enjoy some success and eventually make it to a liquidity event, the venture investors will lose money," Lisson said.

But a closer look at Benchmark III reveals a fund with several potential winners, including Internet Data Exchange System company CoreExpress, an intelligent optical networking play. That investment alone could return limited partners' money. Other potential winners include Sigma Networks,, Netigy and BridgeSpan.

And Benchmark's newest fund, Benchmark IV, is already showing the markings of a winner, thanks to investments in Loudcloud, Netscape co-founder Marc Andreessen's latest venture, and TellMe Networks, whose valuation no doubt went up in its recent $125 million funding round.

Lisson said the Benchmark rumors reflect a misunderstanding of how venture funds operate. "There's a reason these are 10-year funds," he said. "It's called risk and illiquidity. The one monster hit could happen three, four or five years out. You can be wrong about 39 of 40 companies, and the market uncooperative, as long as one is an Inktomi. That is the history of this industry: one monster hit returning the entire fund. Singles and doubles won't get you there."

At two years of age, Benchmark III still has plenty of time to deliver a big winner. In the meantime, the firm's limited partners can enjoy the returns from Benchmark II, a three-year-old fund that has already distributed five times its partners capital, by Lisson's estimate. Benchmark II boasted big winners like Handspring (Nasdaq:HAND), Critical Path (Nasdaq:CPTH), Red Hat (Nasdaq:RHAT), and Scient (Nasdaq:SCNT). Yes, Scient. Benchmark had the foresight to distribute shares of the Internet consultant to its limited partners at 200-300 times the firm's cost.

Benchmark isn't any different from other venture firms, most of whom "drank the Kool-aid" of seemingly easy dot-com money, hoping the stock market would hold up long enough to vindicate those investments. But Lisson expects that some other firms won't hold up as well. He expects a shakeout in the industry similar to the one that hit the industry from 1987-1991, when venture firms formed during the 1980s averaged single-digit returns, and roughly 20% of new entrants couldn't return their partners' capital. VCs' own fundraising declined from $4.2 billion in 1987 to $1.3 billion in 1991. The $4 billion level of capital coming into the industry wasn't reached again until 1995.

"This is what's supposed to happen in a downturn," Lisson said. "People who shouldn't be in the business, who contributed to the excesses and didn't know what they were doing, will be forced out. It's not like this is the first time we've seen too many new entrants into the industry, or too much money chasing too few deals." And the ones that survive will have a chance to prove themselves in tough times, the ultimate mark of a winner.

Lisson said a few venture firms stand out among their peers. Matrix Partners, Kleiner Perkins Caufield & Byers and Sequoia can normally be found at the top of the charts in each vintage year they raise a fund, he said, proving that "something's in the water" at those firms. And he gives Oak high marks for consistency over a long period of time.

But even top firms have an occasional weak fund, Lisson said. "But by the time you can make that judgment about a fund, you'll have raised another fund and shown some early progress," he said. Meaning that even if Benchmark III was a weak fund, Benchmark IV could keep the firm in its limited partners' good graces for some time to come.

"The moral is consistent performance over time relative to same vintage-year peers," Lisson said. "You're never as good or as bad as your current press clippings might indicate. The real test of Benchmark's mettle will come when we can fairly evaluate whether the firm manages through and makes money, not just with small funds during the best times in the industry's history, but with larger funds in the tough times ahead as well."


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 As Start-Ups Fail, Venture Investors Back Out in Droves Financing: The stampede to put money into tech has reversed direction, with some partners selling out at a loss. April 14, 2001 | JOSEPH MENN | TIMES STAFF WRITER For the last three years, investors large and small have been clamoring at the gates of American venture capital funds, begging for a chance to put money into technology start-ups. The funds provided early financing for such companies as Inc., Sun Microsystems Inc. and America Online Inc. before their initial stock offerings, turning millions of dollars into billions for an elite group of university endowments, pension funds and individuals worth at least $1 million. Just as suddenly, the stampede to get in has reversed direction. And some of the dot-com chief executives who made it into the party, committing to invest millions over a decade or so, are trying to back out of their obligations. "It's hard to imagine the speed with which it has happened," said Jon Staenberg of Staenberg Venture Partners, based in Seattle. He has fielded withdrawal inquiries from two investors in his $100-million venture fund who now have cold feet. Both are executives at companies whose market value tumbled by 90% or more. An overall decline in venture financing this year was already expected, since the amount put into start-ups soared 80% to a record $68.8 billion last year, according to research firm VentureOne. Fund returns to investors went negative in the fourth quarter of 2000 for the first time in more than two years, research firm Venture Economics said this week. It won't be hard for the top venture capital firms, such as Amazon funder Kleiner Perkins Caufield & Byers, to raise cash. Those firms have turned away hundreds of would-be limited partners in the past, instead rewarding executives at companies they backed with permission to invest. Many venture capital firms refuse to discuss the new nervousness among their funders. "People are talking about it in hushed tones, with great reluctance," Staenberg said. Those who will talk say the pull-out isn't severe enough to impair the amount they invest in new technologies, one of the major engines for economic growth in the last decade. That's because individuals provide less than 20% of all venture financing. But some are concerned that investments from big institutions might decline for another reason: Many of them have financial plans that call for allocating 5% or 10% of their assets to venture funds. With those institutions' total portfolios shrinking along with the stock market, that 5% or 10% works out to a lot less cash. On Friday, the giant California Public Employees' Retirement System reported that it lost 5.3% of its assets in February alone, wiping out $9 billion in value. Barry Gonder, a senior investment officer at CalPERS, said it seems unlikely that the system's total assets would slide so far that it would have to cut back on future venture investments. "We're at about 5% [of total assets] today, and I can go as high as 8%," he said. "We'll probably become more selective." The individual attempts to withdraw are putting venture capital funds in a delicate position. If they politely allow cash-crunched limited partners to back out, others who simply dislike the firms' investment picks might try to follow suit. "People get caught in the position of do they want to put good money after bad?" said Brent Nicklas of private equity firm Lexington Partners in New York. "I've never seen it quite as widespread." Venture capital partnership agreements typically last seven to 10 years, and the penalties for early withdrawal can be harsh. In some cases, if an investor pulls out when the venture capital firm asks for a new round of promised money, the partner can lose 50% of what it already put in. The profits that the investor had earned to date also can be rolled over to satisfy at least part of the obligation. If that's not enough to meet the capital call, the venture capital firm can sue--an unpleasant step in a business built largely on personal relationships. The least painful way out for a desperate limited partner is to sell to another partner or to dump an unwanted deal on the little-known but growing secondary market, where a few firms specialize in buying limited partnership interests. As tax bills come due, an increasing number of limited partners are doing just that, unloading their holdings for less than 50 cents on the dollar. "We are seeing more sellers than we did six months ago, but the quality has gone down," said Jerold Newman, president of secondary  buyer Willow Ridge Inc. in New York. Another buyer is Nicklas' firm, which takes on soured investment deals worth as little as $1 million--or as much as $1 billion--when a bank or other major institution decides to sell off an entire portfolio. Many more calls from individuals are coming into Lexington's Santa Clara office now than six months ago, Nicklas said. "It's up, and I think it's going to continue to increase through the end of this year," he said. "A lot of last year's money came from new entrants into the market, including high-net-worth individuals at companies that the VCs had backed." A significant complication for those trying to sell off their investments is the difficulty in figuring out how much their stakes are worth. Venture funds often wait until two months after the end of a quarter before estimating how much their portfolio of public and private holdings is worth. Those trying to sell now are using valuation statements from December, before much of the stock slump. The funds also often use numbers designed to make their returns look the best, according to Stephen Lisson of It's common for them to mark up the value of private companies as stocks in similar firms rise, then decline to mark them down again until forced to do so by an event such as a takeover or a bankruptcy. And these days, it's impossible to tell which companies are going to be around in a year. "Valuations are somewhat irrelevant if the company is going to run out of money," Nicklas said. With struggling firms more likely to return to the hand that fed them for another round of financing, it's up to the venture capital firms to decide whether their offspring live or die. "How do you predict or handicap or bet on what the venture guys are going to do? When you sit down with them, they tell you that even they don't know," Nicklas said. As Start-Ups Fail, Venture Investors Back Out in Droves - Los Angeles Times
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