NEA Turns to Trading
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