VC Firm Gets Cold Feet; Startups Sneeze

Describing the environment for high-tech venture funds as "terribly weak," Sevin Rosen Funds , a venture-capital firm with large bets on telecom and wireless companies, said over the weekend it is abandoning its "Fund X," or tenth fund, and returning money already collected to investors.

Though hardly unprecedented -- several funds returned money to investors during the dot.com crash of the early 2000s -- the move, the firm conceded, is "radical." The question now is, what does it imply for future funding for startups in wireless and telecommunications?

Founded 25 years ago, with offices in Dallas and in Silicon Valley, Sevin Rosen has backed several seminal tech companies, including Compaq, Lotus, and Cypress Semiconductor Corp. (NYSE: CY) More recently it has moved aggressively into wireless, backing infrastructure providers like MetroFi Inc. and Wayport Inc. as well as wireless-management startups like Traq Wireless. In a letter to investors announcing its decision to abort the fund (first reported over the weekend by The New York Times), Sevin Rosen wrote, "While good returns from any given firm’s portfolio is certainly a possibility, the statistics have clearly shifted in an unfavorable direction. The venture environment has changed so that overall returns for the entire industry are way too low and even the upper-quartile returns have dropped to insufficient levels."

Get the rest of the story on Unstrung.

— Richard Martin, Senior Editor, Unstrung