"Why a new firm?" That question appeared in a slide presentation shown many times last year by Shasta Ventures, a new VC firm that has just finished raising its first fund. As the firm's founders made the rounds of potential investors in 2004, they knew the question would come up, especially since concerns about an oversupply of capital have recently dogged the VC industry. What's more, Shasta is proposing to specialize in the most crowded part of the VC market: early-stage startups. Yet the firm managed to raise $200 million for its inaugural fund, which is $25 million more than it had anticipated. Is that simply because too much money is too readily available? In this instance, I think not.
Make no mistake: the world doesn't need just any new early-stage VC firm. Of the $17.6 billion of VC raised in the U.S. last year, the largest portion, 52.4%, went toward funds dedicated to early- and seed-stage investing, according to Thomson Venture Economics. Nevertheless, the world could use a few new early-stage firms formed by experienced managers with lots of potential.
Ever since the '90s tech bubble went bust, many VCs have retired, gotten fired, or changed careers. Turnover in the industry rose from 2001 through 2004 as firms cut fund sizes, raised new funds, and re-jiggered partnerships. With , a firm that was great yesterday may not be great tomorrow. That's why the industry needs what it has come to call "emerging managers," i.e., young VC firms that could be the Kleiner Perkins Caufield & Byers or Sequoia Capital of 2025.
It's too early to say whether Shasta Ventures fits that description. But the firm's founders are no rookies. They are Tod Francis, Ravi Mohan, and Rob Coneybeer, who, respectively, come from three reputable firms: Trinity Ventures, Battery Ventures, and New Enterprise Associates. Together, they have 26 years of experience and have backed startups such as Blue Nile, IP Unity, and SupplierMarket.
The partners plan to combine their skills in technology and marketing to consumers. They're seeking to back tech startups with products aimed at end users in business or at home. Shasta's first investment, Zenprise, makes technology that helps corporate IT departments keep employees' computers running. In addition, Shasta has co-invested in a secretive marketing services startup with Benchmark Capital. Keep an eye on these emerging managers.