& cplSiteName &

NEA Turns to Trading

Light Reading
News Analysis
Light Reading
11/16/2001

To profit during the technology downturn, some venture capitalists are thinking outside the box. One twist is betting on public companies where returns can be quick and liquidity is instantaneous.

Take Dick Kramlich, co-founder of New Enterprise Associates (NEA) and one of the most successful VCs in Silicon Valley. On Sept. 21, Kramlich bought 2 million shares of Juniper Networks Inc. (Nasdaq: JNPR), at 10.96 to 11.94 a share. He made the $22 million purchase on behalf of the limited partners in his $2.3 billion NEA 10 fund. That was the Friday of the week the stock market reopened following the terrorist attacks on New York City.

Kramlich said he hadn't planned on putting his capital to work in the public market. But the events of September 11 changed that. “After Sept. 11, the government said be patriotic and buy shares in your own company,” says Kramlich.

Kramlich is no stranger to Juniper. As one the networking company’s founding VCs, he sits on Juniper’s board of directors. Through thick and thin, Kramlich says, he still holds the original 475,000 shares he personally bought in the company.

Patriotism and corporate loyalty aside, Kramlich obviously smelled a bargain after Sept. 11. During the days before his purchase, panicky investors sent the stock plunging to an all-time low of $9.85. But even when a stock price is depressed, timing such a large buy can be tricky. The week after his purchase, Juniper's stock dipped even further to $8.90.

Juniper’s management, of course, was delighted with the purchase, which apparently helped stimulate confidence in the stock once word of the trade began leaking out. Says Kramlich: “When I went to the board meeting a couple weeks later, [CEO] Scott Kriens said, ‘Thank you very much.’ "

Juniper has been trending upward ever since. Three weeks after the purchase, Kramlich distributed the shares to his fund’s limited partners. By then, the value of the investment had risen to $49 million, for a $27 million gain.

Despite his presence on the board, Kramlich insists he had no information that wasn’t public and checked with the firm’s lawyers before making the purchase. He says he thought the stock was a bargain because some analysts had recently downgraded it to a level lower than the company’s guidance. “I thought the downgrades were not justified,” he says.

It turns out his hunch was right. On Oct. 11, Juniper reported earnings that beat those projected by the consensus of analysts. The following day, the stock jumped 26 percent to close at $21.

Kramlich says he rarely puts VC fund money in public stocks. The last time was during the stock market slump of Operation Desert Storm. “Everyone thought we’d have an extended war,” he says.

Meanwhile, just a couple doors down from NEA, William Randolph Hearst III, a fellow board member and a partner at VC firm Kleiner Perkins Caufield & Byers, sold some Juniper shares. On Oct. 25, he unloaded 170,000 shares at $26.25 each, for a total of $4.5 million.

In midday trading Friday, Juniper was up 28 cents (1.12 percent) to $25.40.

— Tom Davey, special to Light Reading, http://www.lightreading.com

(14)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Page 1 / 2   >   >>
HarveyMudd
HarveyMudd
12/4/2012 | 7:33:20 PM
re: NEA Turns to Trading
It is abundanrtly clear to me that BEA has violated public and moral trust as its one of the partners sits on the Juniper Board. The SEC should look into this violation. Acting on the provate advice of its paid attorneys does not make the action legal.

These people have a lot of money and they are prepared to violate every possible law of the land.
moguefett
moguefett
12/4/2012 | 7:33:19 PM
re: NEA Turns to Trading
Let that bea a lesson to ya! That was a no-brainer. Most of the trading I believe has reflected Insiders or "affiliates" Buying their own companies back. Wouldnt you if you were seriously undervalued and had a wadd of cash and no where to go but up? Now is a rare time that not a percentage of, but multiplying you're investment yield is probable.
rjmcmahon
rjmcmahon
12/4/2012 | 7:33:19 PM
re: NEA Turns to Trading
I salute BEA for making money by buying shares on the dip as the scared investors ran for the exits.
_______________________________

uhmm, its Network Enterprise Associates (NEA).

Unless I misread something in the LR article, this purchase doesn't build my trust. A general partner of a VC firm who sits on the board of a public company claims that he has no inside information prior to the company's earnings announcement, buys stock in the *public* company in the name of patriotism, using money presumably raised to finance *private* companies, tests the limits of credibility in my book.

-Bob
sonet49er
sonet49er
12/4/2012 | 7:33:19 PM
re: NEA Turns to Trading
September 11 America was attacked.

I salute BEA for making money by buying shares on the dip as the scared investors ran for the exits.

The clearest thing to me as I have read your rants on these message boards is that HarveyMudd is too scared to take a risk by going to a start-up and resents those willing to take such risks.

Work your 9to5 job at a large company, pray that you are not part of their next RIF and keep complaining.
rjmcmahon
rjmcmahon
12/4/2012 | 7:33:18 PM
re: NEA Turns to Trading
Let that bea a lesson to ya! That was a no-brainer. Most of the trading I believe has reflected Insiders or "affiliates" Buying their own companies back. Wouldnt you if you were seriously undervalued and had a wadd of cash and no where to go but up? Now is a rare time that not a percentage of, but multiplying you're investment yield is probable.
____________________________________

I don't know that there was a SEC violation. Mudd shouldn't claim there was one without stating it. Personally, I would be curious to know if any of the SEC emergency extensions were applicable.

As you say, VCs are buying back at low prices the quality companies they sold to the public during the mania phase. Agreed that most would do the same. Agreed that the public has no clue on how to determine the value of a company, while its relatively easy pickings for those who built the companies in the first place.

-Bob
flanker
flanker
12/4/2012 | 7:33:16 PM
re: NEA Turns to Trading
...All executives and entrepreneurs should therefore boycott 'xxx' and send email to SEC...

Whoaaa, there. The SEC can only enforce public securities law. They can't do anything about private equity fraud unless 'xxx' acts as broker dealer or markets securities to entities that are not "qualified" according to the '34 Exchange Act.

You brought up a valid point about xxx's investment mandate, but I doubt they forgot to include a line about occasionally investing in MARKETABLE securities in their investment memorandum.

Also, why would xxx's limited partners (investors) complain about xxx making money any way they can?

JMHO




rjmcmahon
rjmcmahon
12/4/2012 | 7:33:15 PM
re: NEA Turns to Trading
The article said the transaction was a BUY. It did not say it was a day trade. The article indicated the transaction was LEGAL as reviewed by the company's attorneys.

-Bob

flanker
flanker
12/4/2012 | 7:33:15 PM
re: NEA Turns to Trading
I don't think the issue is whether insider trading occrurred, which is patently ridiculous. The firm made an uncovered bet which could have gone the other way. Acting on an exogenous shock is not insider trading.

Of greater concern would be whether the fund had a manadate to deploy funds in marketable securities, which I am absolutely sure they do, since Juniper is in the tech sector and the investment is relatively small compared to the total committed capital of the fund.


lightcreeping
lightcreeping
12/4/2012 | 7:33:14 PM
re: NEA Turns to Trading
Welcome to the real world.

Does anyone really believe that insider trading is not an everyday activity?

How naive.
geof hollingsworth
geof hollingsworth
12/4/2012 | 7:33:14 PM
re: NEA Turns to Trading
As an insider, Kramlich is required to report any purchases or sales of stock to the public, which the SEC organizes and publishes so we all have access to the info on who is doing what. He filed that information back in September, and it has been only a couple of mouse clicks away from anyone with interest in looking for it. I am not seeing anything remotely suspect here, and I suspect most shareholders wish more of their venture board members would behave similarly!
Page 1 / 2   >   >>
Featured Video
Upcoming Live Events
October 22, 2019, Los Angeles, CA
November 5, 2019, London, England
November 7, 2019, London, UK
November 14, 2019, Maritim Hotel, Berlin
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events
Partner Perspectives - content from our sponsors
Multiband Microwave Provides High Capacity & High Reliability for 5G Transport
By Don Frey, Principal Analyst, Transport & Routing, Ovum
5G + Cloud + AI + Ecosystem, Opening New World of Video
By Samuel Chen, President, Cloud & Data Center Marketing, Huawei
All Partner Perspectives