September 9, 2011 / 2:11 PM / 8 years ago

A decade later: VCs look back on impact of 9/11

SAN FRANCISCO (Venture Capital Journal) — It’s often said that 9/11 changed everything. No doubt, the horrible events of that awful day altered life in America and the world forever. Ten years later, it’s a question worth asking, even if there is no simple answer: What’s changed since then?

A mural honoring victims of the September 11th attacks on the World Trade Center in the Queens borough of New York August 1, 2011. REUTERS/Shannon Stapleton

On the eve of the 10-year anniversary, VCJ wanted to better understand the impact of 9/11 on the venture industry, in particular.

It’s clear that from an economic standpoint, 9/11 was a terrible blow. Coming on the heels of the dot-com meltdown, it was like getting kicked when you’re down. In the year prior to 9/11, venture capital firms raised a stunning $112 billion from investors for new and follow-on funds. In the years following 9/11, VCs never came close to that kind of fundraising activity again. In 2010, for instance, U.S. VCs raised about $13 billion.

Today, the venture industry is noticeably smaller. Some say that would have happened no matter what. But 9/11 clearly accelerated the decline in fund sizes and made institutional investors who were questioning the asset class abandon ship that much faster.

“9/11 put our industry in a state of paralysis for years,” said Dixon Doll, co-founder and general partner of DCM. “It was the slowest period in terms of activity than any other point in my career. People were operating in almost paranoid-driven survival mode and everyone was just hunkering down.”

We asked leading VCs to talk about the consequences 9/11 had — or didn’t have — on their personal and professional lives. What’s changed since 9/11? Their responses will surprise you.


Nearly every VC has a story to tell about a deal that went bad because of 9/11.

Charley Lax was a managing partner at Softbank Capital in 2001. National Leisure Group, one of his portfolio companies, was about to be sold to Barry Diller’s IAC. In fact, the deal was signed and was set to close on September 11. But as events of the day took hold, Lax said that Diller backed out of the deal.

“Who wants to buy a leisure travel company when the skies are shut down and the world is in chaos?” said Lax, who is now a managing partner at GrandBanks Capital. “Barry just upped and walked away from the deal.”

Softbank didn’t forgive and forget. It sued IAC for breach of contract. As part of the settlement, IAC agreed to make a substantial equity investment in National Leisure Group rather than buy it outright. The deal worked out for everyone in the end when the company was acquired by World Travel Holdings Inc. in 2006.

But not every story had a happy ending. Gerry Langeler, a managing director at OVP Venture Partners, remembers clearly the cruel fate of one his more promising portfolio companies. In 2001, was starting to make real headway as an online retailer of consumer electronics.

The company, which raised about $121 million in total funding from about 10 firms from 1998 through 2001, had about $40 million in revenue and was about to double sales overnight by signing a contract to become the fulfillment arm of American Express’ rewards program.

The deal was in place and ready for signatures when the Twin Towers came crashing down.

“Amex had some offices in or around the Towers, and they lost some key people who were involved in the transaction,” Langeler said.

Amex pulled out of the deal, and lost a crucial revenue source. The company never recovered and Circuit City bought some of the assets of a year later at a bargain basement price.


Life is nothing if not one long learning process. And sometimes it takes a gut-wrenching crisis to drive those lessons home.

Matt Howard, an 11-year veteran with Norwest Venture Partners, said he learned something on that tragic day that forever shaped him as a VC. He remembers being very excited in the days prior to 9/11 because he was about to close one of his very first deals.

He had worked hard to piece together a three-way investment syndicate and was applying the finishing touches.

And then the attacks came. That’s when Howard learned that investment syndicates can be fragile things. One of his co-investors was so freaked out by the events of 9/11, he lost his nerve and backed out of the deal. Despite a signed term sheet, the deal unraveled.

“In my book, the person who backed out became a fair-weather investor,” Howard said. “The moral of the story is that it opened my eyes to how important it is to have great co-investors. The beauty of being a VC is that you are long-term investor and you should not be tied to events of the day. From that point forward, I’ve always tried to be more selective about my co-investors.”


For Lax of GrandBanks, 9/11 resulted in a dramatic change in lifestyle. Prior to 9/11, the Boston-based VC was on a plane almost every day of the week for business, often visiting three cities in a single day.

“I would have a breakfast meeting in New York, followed by a late lunch in D.C., and then wrap up with a nightcap in Atlanta or Chicago,” he said. “That’s simply not possible anymore because of the nightmare of TSA.”

In the days after 9/11, he quickly lost his taste for commercial air travel, as well as the long lines and an occasional groping from airport security that goes along with air travel.

“I’m so disgusted by air travel to the point where I no longer want to fly,” he said. Lax doesn’t think he’s alone. He believes many of his colleagues are not traveling as much as they used to, and that VCs once again have a strong preference for startups located in their own backyard.

“Cutting down on travel probably has impacted my job,” he conceded. “Our returns are good, but maybe they could be even better if I traveled more.” Nevertheless, it’s no longer a tradeoff he’s willing to make.


Bio-defense and pandemic related investment were all the rage after 9/11. Prominent venture firm Kleiner Perkins Caufield & Byers even carved out a $200 million fund dedicated to combating bio-terror and germ warfare.

Other investors got excited too.

“Here was an opportunity where the government was promising to write huge checks for companies that had to jump through fewer technical and regulatory hoops,” said Chris Ehrlich, a general partner at InterWest Partners.

But looking back, Ehrlich is relieved he didn’t end up making any investments in the sector, despite being tempted at the time.

“Most of these deals never panned out,” he said, mostly because development times are long and memories are short.

“If you could have gotten a biopharmaceutical product out in 2002, that would be a great financial transaction,” Ehrlich said. “But it takes years to develop these products, and by 2006 or 2007, people had completely forgotten about this stuff.”

In the days after 9/11, a bio-warfare attack was the number one fear for most Americans. Today, against a backdrop of economic strife and record unemployment, it is near the bottom of the list.

“Back then, every time you saw a powdery residue in your house you thought it was anthrax,” Ehrlich said. “Today you just think it’s dust.”


Because of their proximity to the actual events, it’s possible that East Coast VCs took 9/11 more personally and felt its effects more viscerally.

But for Washington, D.C.-based John Backus of New Atlantic Partners, what really changed was his understanding of how government works and how new legislation can impact venture investing. Before 9/11, he paid little attention to what went on in political circles. After 9/11 he became a policy junkie.

“I saw this drumbeat of the Patriot Act and legislation around things like energy independence and immigration,” he said. “These policies had the potential to affect big industry. And any time there are big changes coming, it creates opportunity.”

Before 9/11, for instance, New Atlantic Partners would never have made an energy investment. After 9/11, however, it took the opportunity to back a company called Ember that aims to reduce energy cost and emissions and improve supply security.

“The investment was born out of our new understanding of the U.S. energy policy,” Backus said.


Alex Rosen, managing director at IDG Ventures, has a more philosophical take on 9/11. He grew up in Russia during the communist era. His family’s apartment was bugged by the KGB. His great uncle was executed by the Stalin government. People around him were shipped off to the gulags.

So the events of 9/11, while devastating, did not have the same shock value to him, considering he had experienced large-scale violence and devastation in his own backyard before.

September 11 confirmed to Rosen that the world is a dangerous place and bad things can and do happen. As a VC, that terrible day made him more aware than ever that external events can create chaos and destruction in a particular industry and even a particular portfolio company.

“Most Americans are fortunate enough to think of the world as a fairly safe place to exist,” he said. “They know bad things happen on TV and in the newspaper, but they don’t really happen to them. 9/11 shattered that sense of security permanently.”

September 11 was a life changing experiencing for many people, including Michael Greeley, a general partner at Flybridge Capital Partners. He lost his best friend from business school in one of the Towers. The friend had just landed a new job at a hedge fund.

“It was a profoundly introspective time for me,” recalled Greeley. “You realize that life is so fragile, but you also realize that every day you are here is a gift.”

A mural honoring victims of the September 11th attacks on the World Trade Center in the Bronx borough of New York August 1, 2011. REUTERS/Shannon Stapleton

He was determined to follow his dreams and not waste another minute of his life. A week later, on September 19, he quit his job as a VC with Polaris Venture Partners and set about creating his own venture firm from the ground up.

“I was scratching my head over starting my own fund for several months and I really think it was 9/11 that put me over the top,” Greeley said. “I had just had this devastatingly personal experience. I was happy at Polaris, but life is so short. I had to go for it.”

**A longer version of this story appeared in the September 2011 issue of Venture Capital Journal (, a Thomson Reuters publication.**

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