Venture capital firm shares blunders

While some investors get a sudden case of amnesia when asked of missed opportunities, one cheeky venture capital firm has no qualms of recalling its "screwups."

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Woulda, coulda, shoulda.

It's an unspoken mantra for many investors. But while some investors get a sudden case of amnesia when asked of missed opportunities, one cheeky venture capital firm has no qualms of recalling its "screwups."

Bessemer Venture Partners posts missed opportunities on its "anti-portfolio" Web site as a badge of honor.

Foremost is Apple Computer, which carried an "outrageously expensive" pre-IPO valuation of $60 million. The company is now worth $16.7 billion.

Also add to the list Gateway, which Bessemer believed had no real future in transportable computers, and Lotus, which had just missed its payroll when the venture firm considered the deal.

Bessemer, which invests $400 million annually in high-growth companies, is a rare firm that enjoys pointing out its past mistakes.

"We don't take ourselves that seriously and entrepreneurs appreciate a little honesty," said David Cowan, managing general partner. "It also shows that if Bessemer Ventures says 'no' to a business plan, just because it doesn't fit into the business plans we're accepting today, that doesn't mean it can't go on to be a great company."

He added the anti-portfolio serves as a reminder that the firm needs to learn from its mistakes.

"We learn as much from these mistakes as from companies we invest in that fail," Cowan said. "It shows that rules of thumb are useful, but they need to be re-examined once in awhile."

eBay, for example, proved to be a particularly painful lesson. The stock is one of the few e-commerce players that has more or less survived the recent stock market downturn for Internet-related companies.

"My reaction to eBay was poisoned by my own inability to get the attraction of the site. I didn't think comic books, coins and stamps would have great appeal," Cowan said.

"When I looked at eBay, I could see there was already some ground swell among users," Cowan said. "But the partners and I aren't big users of flea market Web sites. Now we learned that when we evaluate Web sites which engage consumers, we should put aside our own personal instincts and look to actual market research or reactions from actual users."

That lesson was applied to Blue Nile, an online jeweler. Although Cowan was skeptical of customers shopping for diamonds online, he relied more on figures that showed growing traffic on the site and invested in the company.

"A lot of people send me business plans that say in the subject header: 'Don't let us be your next eBay,'" joked Cowan.

Outside of ribbing from other venture firms, Bessemer has yet to lose any deals because of its anti-portfolio, which it posted a year ago. And, if anything, the anti-portfolio has boosted traffic on Bessemer's Web site to the point of requiring a larger server and pipeline, as well as generating an increase in potential business.

Entrepreneurs, who email Cowan about twice a week, note they've seen the anti-portfolio and plan to make Bessemer their first stop for financing.

Bessemer has issued financing to about 200 companies during the past 15 years. Of these companies, 25 percent are public, another 25 percent have been acquired, and the rest are private. He added, however, about five of the private companies have gone out of business.

Bessemer Securities, which serves as the firm's principal limited partner, got into the venture capital business back in 1911. Bessemer was founded by Carnegie Steel co-founder Henry Phipps, who sought an avenue to finance start-ups.

During its 89-year history, Bessemer has managed to hit a few home runs.

Pacific Railroad, W.R. Grace, International Paper and Ingersoll-Rand are a few of the stellar performers, with more recent winners including VeriSign, an online security software maker, Ciena, a fiber-optic network equipment maker, and Veritas, a software maker for managing storage data.

Bessemer invested a total of $6.5 million in the three tech companies, which has turned into an investment worth $5 billion.

"We did manage to get some good deals," Cowan said. "We didn't miss them all."