The Quarter Massacre

Investors can be an unforgiving lot – that makes the stock market a fickle, frustrating space. Last August, VMware, maker of virtualization software, went public in the most anticipated tech IPO in years, immediately climbed from an opening price of $ 29 a share past $50, going up to $80-100 by the year end. Yesterday, it came out with excellent set of numbers with Q4 revenues up 80% and projected 50% growth in coming years. Not too shabby at all.

But the same crowd of nervous investors that pummeled Apple – for flattening iPod sales - after its great quarter thought 50 percent growth sounded like too quick a drop-off from 70-80 percent rate VMware had been posting. The reasoning that the growth rate is slowing because the company is much larger now went unheeded, and by the time the last knife was put away, the share was down 35% to $28, its debut price - investors had lost close to $10b in market cap.

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Now you see the power – or is it a curse – of quarterly numbers. Time for Private Equity funds to move in for the kill and take it private?

Ah, that brings me to the Forbes Midas list of VCs that got released. Here you go. John Doerr, Michael Moritz, Ram Shriram… and so it reads.

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Getting into Forbes Midas List of VCs

Remember Vinod Khosla, co-founder of Sun Microsystems, ( now a Forbes Midas VC focusing on clean energy ventures thro Khosla Ventures ) amongst others ? The Silicon Valley venture capitalist who hit it big during the telecom boom in the 1990s, turned two years ago to embrace green technoloy. Everyone thought his outlandish bets on untested technologies such as celulosic ethanol - which most experts caution will be only be commercially viable in two years, at the earliest — would take some time to show results.

Vinod paid no heed to that advice and went straight ahead with his investments in the space and got rewarded handsomely. He knew it was an opportunity when he saw one in in Cambridge, Mass.-based Celunol last year as part of a $60 million venture capital round. Biotech company Diversa announced Monday it will acquire Celunol in a deal worth roughly $182.45 million. Cellulosic ethanol is a process that uses non-food plants and other waste to make ethanol, and it is much more efficient, and thus better for the environment, than regular corn-based ethanol.

Normal refrain of all VCs is that they are interested in funding Ventures where they have a clear domain expertise. Point taken. I had always argued that what separates a great VC from a good one is the level of their prescience in seizing an early opportunity and their deftness in moving along the vetting and mentoring processes including roadmap for execution to deliver a multi-bagger. With the first few hits and misses, the great one gets the picture right. Then it’s only a question of taking an early intelligent bet than having a direct domain expertise. They assess the strength of the idea, the management team and help the founders reinforce that team with outside talent drawn from wherever. That’s how they get into Midas list.

Vinod has done just that. He’s not been much on clean energy to begin with but has done his home work well before he took the plunge. Clearly the stuff VC legends are made of.

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Do you think other VCs can take a leaf out of this and make a difference ?