Venture capital firms traditionally have not diversified into the hedge fund territory. Rather, until the recent attraction that some venture firms have had for PIPE deals, the extent of venture involvement in the public markets has been to take a portfolio company public and cash out. Venture firms are not famous for seeking to add value long after a portfolio item is already public.
However, one San Francisco-based venture firm has long taken a less conventional approach: Crosslink Capital houses overlapping venture capital and public equities teams which, in many cases, allow the firm to continue its participation in select investments from conception through post-IPO. And because it invests in both private and public companies, Crosslink has to manage a more complex regulatory and compliance burden than most venture firms.
Launched in 1989 as a family of funds called Omega Venture, Crosslink was originally a captive arm of tech-focused investment bank Robertson Stephens (renamed RS Investments upon the management buyout of the company from Bank of America in 1999). In January 1999, co-founders Sy Kaufman and Michael Stark led the venture unit's spinout from the RS parent entity and rebranded it as Crosslink.
Prior to founding Omega, Kaufman – now semi-retired from Crosslink – headed up RS' investment banking activities, while Stark served as the firm's director of research. Upon the launch of Omega Ventures, the team managed a successful fund, and when they raised a second fund – Omega Ventures II – in 1995, the team decided to do a unique crossover strategy in a fund for which 30 to 35 percent of the committed capital was allocated venture capital, while the rest was invested in the public market.
Since the spinout eight years ago, Crosslink has expanded from 13 to 34 employees and has nearly quadrupled its assets under management. ?Even though we have separate ?teams,? every Monday we have all-day long meetings of the public team and the venture team, all talking about what's going on in the public markets and on the venture side,? says Gerri Grossmann, Crosslink's chief financial officer. ?A lot of insight is gained from both sides bouncing ideas.?
Grossmann was among the RS veterans to move to the new firm upon its independence. While at RS, Grossmann was the controller for the investment bank's venture capital and private equity real estate funds. ?When [the Omega team] decided to spin out, they offered me to come over as CFO,? recalls Grossmann. She has stayed with the firm since.
As Crosslink's CFO, Grossmann has the daunting task of managing the finance and administration of the three types of strategies through which the firm makes investments. First, there are the ?straightforward? venture capital funds – Crosslink is currently managing its fifth such fund. Hedge funds comprise the second type of fund structure, typically in the form of long/short equities funds. And finally, there are the crossover funds, which are a hybrid between private and public equity investing.
The way that these structures interact in practice is that the hedge fund does not invest in private deals, while the venture capital and crossover funds co-invest pari passu in Crosslink's VC deals, says Grossmann.
To manage the IT and reporting challenges that go hand in hand with managing three types of strategies, Grossmann has in-house support that includes a controller, who supervises two accountants. One of the accountants focuses on the public side and does daily reporting work with the prime broker, while the other accountant works on the VC side to maintain the accounting and reporting systems for the funds, as well as the investor database and reporting via the investor website. Fundraising and investor relations-related responsibilities fall within the domain of Grossmann's colleague Bill Nolan, a Crosslink general partner, and vice president Rachel Brewster, who together focus on client services, sales and marketing.
We used to have separate auditors for venture funds and for the crossover and hedge funds,? says Grossmann. ?When we spun out from Robertson in 1999, we thought we would get better service by centralizing it all in one firm. Ernst & Young has excellent capabilities in both, so we consolidated everything with them.?
Grossmann estimates that she spends about two-thirds of her time working on Crosslink's venture activities, and the other one-third of her time on the hedge fund side. She says she finds herself occupied with legal issues, in addition to fund documentation, deal closings, and monitoring portfolio company performance.
Given its diversified business, Crosslink is ?a lot more aware of documentation? than the typical venture firm, asserts Grossmann.
|Crossover Fund III (1999, $225m, public equity & VC fund)
|Capital under management: $1.1bn
|Crossover Fund IV (2003, $280m, public equity & VC fund)
|Office: San Francisco
|Crosslink Partners (1999, $90m, long/short public equity fund)
|Total employees: 34 (19 investment professionals)
|Investment strategy: seed, pre-IPO and PIPEs; $7 million to $15 mil-
|Key personnel include:
|lion per company over multiple rounds; US investments only; sectors
|Sy Kaufman Founder (semi-retired)
|include core technology/semiconductors, software/services, con-
|Michael Stark General partner and founder
|Tom Bliska General partner, public equity investing
|Dan Dunn General partner, public equity investing
|Select co-investment partners:
|David Epstein General partner, venture investing
|New Enterprise Associates, Norwest Venture Partners, MeriTech
|Jim Feuille General partner, venture investing
|Capital Partners, JP Morgan Partners, Morganthaler, US Venture
|Charlie Finnie General partner, venture and public investing
|Gerri Grossmann Chief financial officer
|Bill Nolan General partner, marketing
|Rachel Brewster Vice president, marketing
|Accountant Ernst & Young Law firm Shartsis Friese
|Accounting platform Advent, Analytix
|Crosslink Ventures IV (2001, $230m, VC fund)
|Human resources Gevity
|Crosslink Ventures V (2005, $250m, VC fund)
|Crossover Fund II (1996, $65m, public equity and VC fund)
|Source: Crosslink Capital; CapitalIQ