...And They're Off

Sarah Lacy

Last year was a big fundraising year for venture capitalists, and 2005 is shaping up to be more of the same. First up: Mohr, Davidow Ventures. The firm is announcing a new $400 million fund today and no one should be surprised.

Mohr, Davidow is one of those veteran Silicon Valley firms, and got extra points with limited partners in late-2001, when it was the first major firm to voluntarily cut its $850 million mega fund. A year or so later, it was the first to make a second cut, slicing that fund down to $450 million.

Not that they really needed these points. No one with any success under their belt has had an ounce of difficulty raising money this cycle—despite three years of talk that VCs would have to pay for sins of the bubble. Billions in European pension fund money is champing at the bit to get into U.S. venture capital, by all accounts. And everyone else in the U.S.? 1999 may have been a bad vintage year, but the best returns usually come after a big downturn and they know it.

The problem is good returns don’t usually go hand-in-hand with way too much money.

It worries everyone, including Nancy Schoendorf, general partner at MDV. But there’s not much VCs can do about it, aside from whining. And while limited partners are also wringing their hands, none of them are volunteering to cut their own venture capital allocations.

So what’s a top tier VC to do? Mohr, Davidow has concentrated for the past year on expanding into some new areas like energy and should announce their first deal in that sector soon. But much of the fund will go to more of the same: enterprise software, semiconductors and networking companies. That means this fund will be an execution game more than anything. Mohr, Davidow and a dozen or so others have enjoyed the mantle of the venture capital elite for years—this fund, they’ll have to prove why.

Before it's here, it's on the Bloomberg Terminal.