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Red Herring

Venture Capital
Something ventured
Wall Streeters break down on Sand Hill Road.

By Julie Landry
August 21, 2002

It seemed so natural at the time: superstar Wall Street analysts--those with the most talent for combining solid analysis and effective marketing--were attracted by the more relaxed lifestyle and huge potential returns of venture capital. But now, just a few years later, the idea looks like a failed experiment. Well-known former analysts like Lise Buyer, Keith Benjamin, and Danny Rimer have found the transition far more arduous than expected.

In the fall of 1999, Keith Benjamin left a high-profile post as lead Internet analyst at Robertson Stephens to join Highland Capital Partners. In the following nine months, a parade of analysts followed suit. Of the eight most prominent movers, only three remain at the firms they first joined.

The most recent one to move on is Ms. Buyer, whose stint at Technology Partners ends in July. She hasn't decided what her next move will be, but hasn't ruled out venture capital. Ms. Buyer says the four-person firm decided to increase its focus on health care investing, necessitating a cut in its technology group. "A number of partnerships are reassessing their infrastructure, and by definition, it's almost always last person in, first person out," she says. Although she believes VC firms need a mix of financial and management experience, Ms. Buyer acknowledges that these days, partners with experience running their own firms are more useful to portfolio companies than are former analysts.

Clearly, the skills needed to be a venture capitalist in 2002 are drastically different than they were in 1999 and 2000. When IPO grooming and financial jockeying were paramount, former analysts were highly sought after. Now, VCs and their portfolio companies prefer someone who has captained several private or public companies through tough times.

The language of startups has also changed, says Bill Tai, a general partner at Charles River Ventures. Companies are "stories" or "deals" in banking lingo, an attitude VCs also adopted in the late '90s, says Mr. Tai, a former analyst himself. Lately, he says, VCs are referring to companies as "projects," indicating a more long-term commitment.

One reason for the lack of big hits by former analysts is that they have a steeper learning curve than do VCs with operating backgrounds, says Bill Gurley, a Benchmark partner who spent three years as an analyst at Credit Suisse First Boston and Deutsche Morgan Grenfell. The trouble is, those who get their start at Wall Street firms aren't exactly receptive to constructive criticism; they're used to calling the shots, and often find it hard to defer to other partners. "The analyst job is very autonomous--you're building a practice, and your reputation's your own," says Mr. Gurley. "Here, the team element's a much bigger deal."

Analysts are also accustomed to the market's daily feedback on their success, while VCs often have to put in three years of work before they know for sure whether a given investment will pay off. "In venture capital, only about 10 percent is making the investment," says Mr. Burnham. "The other 90 percent is living with it."

Still, given the turmoil on Wall Street, you'd hardly expect many former analysts to be wishing they were back in their old jobs. Bill Burnham, managing director at Mobius Venture Capital (an early-stage affiliate of Softbank Capital Partners), is grateful he jumped the fence when he did. "It's a welcome relief to spend 100 percent of my time working with companies a lot more closely than I could as an analyst," he says. Mr. Burnham has made ten investments since joining Softbank's ranks in 1999, only two of which have lost money--not bad for a firm saddled with dozens of defunct Internet companies.

But Mr. Burnham's experience seems to be the exception. Most of the high-profile analysts who became venture capitalists during the last few years have since moved on. Success as an analyst didn't automatically translate to success as a VC. That said, the star analysts who remained on Wall Street have lost as much lustre as those who dimmed on Sand Hill Road. These days, VC firms rarely consider analysts when doing searches for new partners, according to recruiter Mel Connet, who says operating or venture experience is preferred. Despite its pace in the late '90s, VC is a game best played slowly and carefully--and apparently a difficult one for those coached by the stock market's daily feedback.

Write to Julie Landry.

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