Silicon Valley’s exposure to Lehman Brothers

You’d have to be living in a cave to have not at least heard some of the news coming out of Wall Street at the moment. Lehman Brothers has filed for bankruptcy, AIG is teetering on the edge, and Merrill Lynch has been sold to Bank of America. Billions of dollars are being pumped into financial markets globally in an effort to stave off total collapse, and Wall Street has taken its biggest plunge since 9/11.

Across the country, Silicon Valley may seem far removed from the mess. The startups in Palo Alto go on, and on Sandhill Road, the VC’s are still turning up to work. Although we may not see the links to Wall Street on the surface, they are strong, and Silicon Valley is not immune to the crisis. Here’s what we can find on Silicon Valley’s exposure to Lehman Brothers

Lehman Brothers as an investor

Lehman Brothers may not immediately be top of your list as an investor in Web 2.0 companies, but the company is a major player in the Valley. Lehman Brothers Venture Partners has raised $1 billion for investment in technology, with its last round in October 2007 raising $365 million. A full list of their investments can be found here. Companies you may be familiar with include Comscore, Kayak, Searchme, Zappos and Kontera.

Lehman Brothers Venture Partners is not included in the Lehman Brothers bankruptcy filing, however as part of Lehman Brothers Investment Management, it’s currently on the market. There’s no reason to think that it won’t sell, however one of the biggest investors in the fund is Lehman Brothers itself

Investors in Lehman Brothers Venture Capitals’ funds include Lehman Brothers, Lehman Brothers’ employees, and institutional and individual third-party investors.

Naturally the ties to other areas of Lehman Brothers is strong as well

As an integrated component of the overall Lehman Brothers platform, Lehman Brothers Venture Partners can call on the extensive global resources of Lehman Brothers to assist in evaluating and enhancing the value of portfolio companies. At the same time, the integrity of the investment and portfolio decision process is reinforced by dedicated investment professionals and the substantial capital commitments made by Lehman Brothers and its employees.

The fund may go on, but with the relationships in place it has to take a hit on several fronts, and you’d presume that it will slow or cease new investments until the mess is sorted out.

Secondary financial hit: one less partner for existing firms

Most of the deals I could dig up for Lehman Brothers Venture Partners where not stand alone investments, but done alongside other Valley firms. Here’s a few in the mix via QBase

07/2006 Series A 7M Lehman Brothers, Sequoia Capital
08/2007 Series B 10.3M Carmel Ventures, Lehman Brothers, Sequoia Capital

Power Reviews
09/2007 Series B 15M Draper Richards, Lehman Brothers, Menlo Ventures

10/2007 Series D 15M Lehman Brothers, DAG Ventures, Sequoia Capital
05/2008 Series E 12.6M Lachlan Murdoch, Randy Adams, Thomas Banahan, Sequoia Capital, DAG Ventures, Deepfork Capital, Lehman Brothers Venture Partners, Mark Kvamme

I’m not saying that these deals wouldn’t have happened without Lehman Brothers, but an investor with a $1 billion fund does make a nice partner, and any short term or long term absence will be missed.

Lehman Brothers as advisers

I’m unable to find a complete list of tech/ web 2.0 deals Lehman Brothers were involved in, but their name regularly pops up as advisers on big deals. Lehman Brothers managed to the sale of Photobucket and 24/7 Real Media and were advisers to Yahoo on the Microsoft/ Yahoo deal.

There is always alternatives in the market, but with the turmoil at the top among the firms left, Lehman Brothers leaves a hole that may see the costs of advice increasing.

see also Black Monday and its effect on tech.