Forbes names Haque, Khosla as Top Venture Investors
By siliconindia   |   Tuesday, 03 February 2004, 20:30 IST
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First time in the top spot, eclipsing Vinod Khosla, a founder of Sun Microsystems, Promod Haque slammed a few home runs in the late Nineties bubble--but lately the big hits have been harder to come by for the managing partner of Norwest Venture Partners, Forbes reported. One promising fledgling, a Voice over Internet Protocol play called Veraz Networks, has gone through a foreclosure, a merger, three name changes and two business plans, . But Haque stuck it out rather than cut and run as many VCs are prone to do. Now Veraz is coming back: It has $60 million in annual revenue and runs ten global networks, in Russia, India, Southeast Asia and elsewhere. Says Haque, "By the time the market picks up in the U.S., we'll already have a global leadership position." Haque's past hits helped put him in the number one spot on this year's Forbes Midas List of 50 top venture investors--and at an ideal time. Tech is back. It's sexy again. The Nasdaq has nearly doubled since October 2002. A multibillion-dollar public offering for Google is the talk of Silicon Valley dinner parties. Research outfit IDC says worldwide IT spending will rise 5% this year to $915 billion--a sizzling rebound after three flat or down years. He was raised in Delhi, India by a bureaucrat father and schoolteacher mom. Dad wanted him to be a doctor but studied engineering at the University of Delhi and moved to the States to get a Ph.D. in electrical engineering at Northwestern University with only a $4,000 loan from his dad. And went on to become a millionaire. Coming second in the list is the deposed king of venture Vinod Khosla, who still inspires fantasies of early retirement among his hard-driven entrepreneurs. He made billion-dollar exits look easy in the boom: Cerent, Siara, Corvis, Juniper and went afoul with ExciteAtHome. Nothing to brag about in 2003. He hopes to reclaim crown with Kovio, Infinera, OnFiber, Zaplet. But some of the best VCs are operating differently this time around. They used to spend most of their time searching for obscure ideas that might someday become hot companies. Nine of ten ideas would fail, so they would readily abandon their flops to stoke another new hope. The boom and bust have turned this process upside down. Now instead of devoting all their efforts to new offspring, some VCs are taking out the defibrillator to revive the ideas and forgotten firms they or others backed once before. Startups are out; restarts are in. "We're company builders, used to seeing opportunities in problems rather than seeing them as impossible things that should be avoided. This is what we're supposed to be doing as VCs," says Gary Morgenthaler of Morgenthaler Ventures. It is difficult to pinpoint how much money is flowing into these do-overs, although one indicator may be the doldrums that still afflict the old-line venture business. Most venture funds started since 2000 are down by double-digit percentages. As many as 5,000 venture-backed companies still dangle somewhere between bankruptcy and mediocrity. VCs spent $906 million on first-time financings in the third quarter of 2003, but that is only one-seventh the amount they invested in the same quarter three years ago. Yet VCs have plenty of money to play with--up to $70 billion in committed, but not yet invested, capital. Playing the restart game can be more thrilling than discovering a new idea. It's a chance to prove a theory correct, to step in and succeed where others have failed. Jay C. Hoag, cofounder of Palo Alto, Calif.-based Technology Crossover Ventures, has won big recently by reviving deals that would have brought jeers three years ago. In August 2000, four months after the market began to crash, he made a private investment of $53 million for a 10% stake in publicly traded Expedia, the travel Web site. Then came Sept. 11, airline bankruptcies, SARS, war in Afghanistan (and, later, in Iraq) and a recession. As panicked customers canceled their trips, Expedia weathered a string of days when it paid out more in refunds than it took in for new trips. But Hoag stayed on the board, initiating the acquisition of Travelscape, which gave Expedia access to the hotel business and a key edge over its main competitor, Travelocity. Expedia also invested in advertising when others pulled back. In February 2002 Barry Diller's InterActive Corp. bought a 65% stake in Expedia for $1.4 billion. A few months later he offered another $1.6 billion for the rest--a sudden 113% rise in valuation. Expedia management and some members of its board wanted to take it, but Hoag got everyone to wait.

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