“I’ve thought about writing a blog. I’ve thought a lot about it, but that’s not really me,” said Mike Kwatinetz, dipping into an omelet yesterday at Bob’s Steak & Chop House, an old-school San Francisco eatery. “I can’t help but feel there are better uses of my time.”
The sentiment wasn’t surprising coming from Kwatinetz, who co-founded the tech-focused venture firm Azure Capital Partners in 2000 with several other former investment bankers, all of whom once reported to star banker Frank Quattrone.
Azure does much the old-fashioned way. You’d never find Kwatinetz in a hoodie, for example. He uses a Blackberry. And though Azure’s deal size varies considerably, the firm has largely shied from trying to compete for seed-stage deals, despite how fashionable they’ve become. “There are always firms that are very good marketers and that look for the cause du jour, whether its cleantech, or India, or China or seed funds,” says Kwatinetz. “We just don’t do that.”
The firm has also been racking up wins the age-old way. In 2008, portfolio company, Bill Me Later, a service that sends Web shoppers a bill for goods purchased online, was acquired by eBay for $945 million in cash and stock after raising roughly $200 million from investors over eight years. Kwatinetz says the investment produced a “5 to 7x return” for Azure, which participated in seven of its nine rounds. World Wide Packets Inc., a fiber optics play, sold in 2007 to Ciena Corp. for $290 million after raising $130 million over eight years, mostly from Azure, among 10 other investors.
And in March, another Azure portfolio company, telecom equipment maker Calix Networks, went public. Its performance thus far has been disappointing, given that its shares are trading in the same $13 range in which they debuted. Indeed, Azure hasn’t sold its shares yet, says Kwatinetz. “We think the stock is more valuable” than its current share price. Still, it’s among the biggest telecom deals this year, a period in which just about 40 venture-backed companies have gone public.
Nevertheless, as we drank our third and fourth cups of coffee, Kwatinetz admitted that more than a year after first meeting with LPs, Azure is still raising its third fund. (A filing for the fund, with a listed target of $250 million, first appeared back in December 2009. The filing showed that the firm had not held a first close at that point. Azure is also raising a smaller side fund for “qualified” investors, per a filing that was also processed in December.)
Kwatinetz declined to comment on Azure’s fund-raising process, or when it might end, citing regulatory restrictions. The slow fund-raising process certainly isn’t unique to Azure. According to data released just yesterday by the NVCA, VC fund-raising has slumped from roughly $28 billion in 2008 to around $9 billion through the first three quarters of this year.
Still, it’s hard to see how Azure fits into this malaise. Azure’s first two funds, a $540 million vehicle raised in 2000 and a $300 $127 million fund closed in 2006, presumably have decent IRRs, comparatively speaking. In addition to Bill Me Later and World Wide Packets, Azure’s first fund included VMWare, acquired by EMC for $675 million in 2003.
The firm, which typically makes around five new investments each year, looks to have a number of promising companies in its current portfolio, including the optical startup Cyan Optics, whose co-founder, Mike Hatfield, also founded Calix; the storage company Coraid; and the women’s blogging network BlogHer, which turned profitable in the second half of this year.
And Azure’s themes seem spot-on, including a focus on cloud computing, as well as media’s continuing move online. “We think we’re just 25 percent there,” says Kwatinetz of media’s ongoing evolution.
So what’s the hold-up? I’m still puzzling over it, but as Kwatinetz left our meeting, it occurred to me that perhaps Azure would be better served if it just gave in to the social media (and self promotional) trends. Cautious LPs are one thing to overcome. But I wondered if schmoozing online or tooting your horn in the Twittersphere or simply making more noise like so many other firms hasn’t become another necessary consideration.