Global VC 200
21 May 2009, 12:48
by Red Herring Staff
Until recently, Silicon Valley financiers arrogantly expressed their disdain for investing beyond a thirty-mile radius. They felt that any startup concocted beyond that distance could not be groomed to become a public company. No more. They are now spreading their wings and their offices globally.
Since Red Herring’s inception, editorial teams have surveyed the entrepreneurial landscape and the technology sector. Gradually, we have expanded internationally and mastered how to evaluate the best startups from five continents. Inevitably, we have become acquainted with hundreds of venture capital firms that have nurtured and financed the entrepreneurs to the point where we could anticipate the quality of the emerging companies based on their backers. However, we never jumped over the fence to evaluate the venture capital firms themselves in the United States, let alone on a global basis.
Obviously, a series of obstacles prevented such an endeavor. Traditionally, the venture capital world has operated behind closed doors and not invited public scrutiny. Some of the best-known firms have even dropped some of their limited backers, illustrious pension funds, which decided in 2003 to publicly disclose each fund’s returns. Although venture capitalists live on retiree’s money or college alumni donations, they cringed at the fact that these ultimate stakeholders would know about their state of affairs on a quarterly basis. Hence any study regarding the industry would be largely handicapped by the lack of readily available data.
At the same time, the classification of venture firms on a global basis comes at the price of a significant discrepancy across continents. In many countries outside of the United States, most funds started in the 90s, if not later, and a tracking of their performances compared with their U.S. counterparts calls for significant questions. In China or India, the incredible potential of these firms still does not compensate for the lack of local IPO markets. There are reasons galore to launch local funds in these territories, but it remains to be seen whether their returns can match or best their peers.
As importantly, we fully realize that a venture capital firm's past return cannot be viewed as a proxy for the future, a fact reported in a series of studies by Flag Capital. Watching in the rear view mirror to predict a fund’s return only works for a handful of U.S. venture firms and abroad. Every decade since 1970, when the venture sector started to reach critical mass, the best earners have evaporated and a new crop has emerged. Exceptional were those funds to consistently maintain a Midas touch as well as their teams. Last and not least, we needed to tackle intangible factors, current portfolio values as well as upcoming winners that could return whole or a big portion of the funds. Fortunately, our long-running data collection, going back to 2003, has brought us closer to a large number of the startups with over $50 million in revenue, significant growth and international presence. They will invariably carry the day when the exit windows open up.
Process and Criterion Red Herring selected three sets of metrics: Financial performance, global footprint, and intangibles. The first one, obviously, relies on data but also on the value of the currently active portfolio. The second takes into account the number of overseas investments and their success. The third one relies on several variables such as the longevity or stability of the management team at the VC firm.
We also decided to include a small group of upcoming funds with little history but a lot of promise. We talked to LPs on three continents to validate the choices, and their immense experience has helped us screen out firms whose reputation and public relations acumen does not match their financial returns.
The announcements will be made in three steps. First, we are releasing today the best 200 performers from over 30 nations from 1,800 candidates that have invested in two or more technology companies in the past five years. Then two weeks later we will release the Top 100. And two weeks later we will provide an individual ranking of the Top 100.
Needless to say, the RED HERRING GLOBAL TOP 100 Venture Capital firms remains a work-in-progress. We will continue to improve on our metrics and provide to limited partners, the venture capital industry and their portfolio companies more insight into the entire value chain. We welcome suggestions and trust you will enjoy the read.
Alex Vieux
Publisher
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