Marc Andreessen stopped by our offices last week to discuss his new fund, and I took the opportunity to throw out some off-topic questions about Twitter (he’s an angel investor), LinkedIn (ditto) and Facebook (he’s on the board):

How does Facebook CEO Mark Zuckerberg remind you of your younger self and how is he different?

The big difference is he really wants to be the CEO and has tremendously applied himself to doing that. I actually think he’s not that similar to me from that standpoint. He’s doing a really good job of running company and really wants to. That’s a big difference. Similarities? I don’t know. Young? [Laughs]. Young and hard working. He’s the real deal. He wants to buckle down. He wants to build a great company. He doesn’t want to sell it.

You seem to be a firm believer in the “if-we-can-scale-this-thing, the money will come” model. You’ve said as much about Facebook and Ning and Qik. But that doesn’t always work. It costs startups like Pandora a lot of money every time they attract a new user. As an investor, how do you know when going big — at all costs — is the right approach?

Numer one, the details really, really matter. The cost structure really matters. When people get in trouble with this sort of thing, it’s usually for one of two reasons: Either the market wasn’t going to be that large—in which case deferring revenue to get to the market wasn’t worthwhile—or the costs are just too high.

Here’s how I think about the economics of Twitter, for example. The economics of Twitter are that they’ve spent about $15 million [of the $40 million they’ve raised]. They have created already a global brand name. Ben [Horowitz] likes to point out that the Bing ad campaign [by Microsoft] is $300 million of advertising. Would you rather own the Bing brand or the Twitter brand?

Two, they have a user base of about 30 million users now, growing very fast. And, three, they have that growth rate, so they have all the future acquisition.

But even just looking at the current user base, they’ve spent maybe 50 cents per acquired user. Total. For everything. All development, all marketing, everything. And so on the revenue side, you say: ‘Suppose they want to monetize that? Can they get 50 cents per user per year in terms of ads?’ Yeah, probably they could do that. So to go get that $15 million back seems really easy, and it seems like there’s a lot more upside beyond that.

That’s a case where you say, ‘OK, having done that, what do we now know?’ It seems to be mainstreaming. It seems like the total addressable market is somewhere between 100 million users and a billion users, or maybe more. It seems like the right thing to do, with those economics, to raise some more money, which they’ve done, and go get the rest of those users. Once they have the users, then monetization obviously becomes very easy. If you have any monetization mechanism, then it’s just a large scale, so you just turn it on.

Earlier this year, you said on Charlie Rose that if you can get 50 to 100 or 150 million users, then everyone is going to end up using it. How did you decide that was the tipping point?

I made it up. [Laughs.] I pulled it out of my butt. However, there’s a point at which it’s not just nerds, speaking as a nerd. Whatever it is. It’s not just Silicon Valley people, it’s not just people in urban areas, it’s not just people in California. There comes a point where you can go to Topeka [Kansas] or Poughkeepsie [New York] or Lubbock [Texas] and you can run into people—and they’re normal people—and they use something. And when that happens, that’s a really big deal. That’s something that has clearly traveled culturally and societally very broadly. And it’s clearly something important. You get the occasional fad, but actual products that propagate like that don’t happen very often, so when they do, it’s a sign that you’re really onto something and if you keeping pushing it you can probably make it much larger.

I’m sure this is the least of any investor’s concerns, but is there point of over-saturation and a way to mitigate that danger? MySpace seems to be tipping in the other direction.

MySpace has a different issue in my view. Their issue is that they fell behind on product innovation, specifically versus Facebook. They had their network effect. It was growing. It was getting very large. [But] Facebook has, I think, out-executed them on product. Facebook is increasingly taking the network effect away from them. I think they’re aware of this, which is one of the reasons why they hired Owen [Van Natta as CEO]. They’re going to try to come back at it and counter it.

You look at the two companies. MySpace does a lot of things really well. But, that said, they’re owned by a major media company, they have focused tremendously on monetization for the past two years, and they just don’t have the product innovation engine that Facebook does. Facebook is completely focused on product innovation. I think it’s a case study of how that happens. You could argue that MySpace focused too quickly on monetization. You could argue that you just saw the consequence of switching focus like that before you’ve taken the whole market.

Were you an angel investor in Facebook?

No, I wasn’t.

Did you have an opportunity invest in Facebook as an angel?

Damn, she asked the question. [Laughs.] Let’s put it this way, I’ve known them from the beginning. I probably could have if I had tried hard, but I didn’t.

Because?

Because I didn’t. [Smiles.]

Because of your investment in LinkedIn?

No. It’s always an affirmative decision. You have to actually step forward and actually go after it. And things just really happen fast, and Facebook was happening at a super high rate of speed and things just didn’t click.

But you have shares as a director.

Yes, as a director.

Is there another company that you now think, ‘Damn it, I wish I had invested in that?’

The one that I tried to invest in but couldn’t get into was [social network aggregator] FriendFeed. They’re too rich. They’re former Google guys. They basically did it themselves. They have too much money.

FriendFeed is viewed by some as a competitor to Twitter. Did you invest in the idea of Twitter or did you invest in Odeo? [Reader background: Twitter cofounder Evan Williams first cofounded Odeo in 2004, a company that let PC users find and subscribe to podcasts; in early 2006, Williams also began testing a new company, Twitter, out of an effort to make Odeo accessible over cell phones. Once Twitter evolved into what it’s become, the two concepts had little to do with each other.]

Twitter, not Odeo. I knew of Odeo, but I didn’t actually know Evan back then. When Twitter first got started, I emailed him and that’s how we first met. I saw Twitter when the product first launched, back when they were in the middle of the transition, so they hadn’t yet shut down Odeo and they hadn’t yet raised money for Twitter.

Because [Odeo backer] Charles River Ventures had accepted its money back, for which I’m sure they’re kicking themselves now.

Was it Mayfield? Or CRV? That’s one of the great stories, because Evan made up the difference. My understanding is he made up the difference out of his own pocket and gave it back to [investors] whole. That’s a great guy. That’s a classic story and I think that’s representative of a pattern you’re seeing these days.

You can read the full transcript of the Andreessen Q&A at Venture Capital Journal.

And here’s what Andreessen has to say on his blog.

(Photos by Lawrence Aragon)

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The eponymously named Andreessen Horowitz fund, whose only GPs are Andreessen and Horowitz, will not invest in “cleantech, energy, biotech, life sciences, nanotech, rocket ships, electric cars or space elevators,” said Andreessen.

Instead, he and Horowitz will be seeking out the most interesting opportunities in “consumer Internet or what we call business Internet: software as a service and related things [and] cloud computing.” Andreessen added that the pair, both computer scientists by education, would also invest in hardware and software — “so, networking, storage, servers, databases and all sorts of related things around that.”

The new fund’s deal size range — $50,000 to upwards of $50 million — may be the most unusual aspect of the its approach. Andreessen said it will give the team the flexibility it needs to back the best companies, whenever in their life spans that he and Horowitz come across them. “We’re on the hunt for new franchise companies,” said Andreessen, which he explained as a “company that gets to $100 million in revenue a year.” Ideally, he said, “We’ll find them at the seed stage and help develop them. Failing that, if we screw that up, we’ll then, as we say, ‘correct our mistakes’ and go into a later round.”

Andreessen, who’s of a mind that 15 “franchise” companies are founded every year, added, “Our view is when you find one of those franchises — or a company that you think can be one of those franchises—you want to invest as much as you can both in time and effort across as many rounds as you can.” Otherwise, he said, “you fail [as an investor].”

Unsurprisingly, the firm’s LPs — including Horsley Bridge Partners — can expect to see many more seed-stage investments than anything else in the fund. In fact, Andreessen says the new fund is “working on two [deals] right now, one of which we’re close on and one that’s further away.”

Andreessen and Horowitz have helped fund 43 seed-stage companies as a “hobby” since 2006, amassing stakes in, among others, Aliph, the San Francisco-based maker of the Jawbone headset, which is backed with $42.5 million from Khosla Ventures, Sequoia Capital, Mayfield Fund, and angels; advertising network SocialMedia in San Francisco, which has raised $10 million so far including from Charles Rivers Ventures and IDG Ventures; and Qik, a Redwood City, Calif.-based company that enables cell phone users to stream live video and that has raised $4 million from angels, including Salesforce CEO Marc Benioff.

Going forward, Andreessen suggests Andreessen Horowitz’s first fund may back anywhere between 60 to 80 nascent startups, companies young enough and with few enough employees that “we often advocate the companies not even have boards.”

A seed-stage company’s “mission in life, in our view, is to find product-market fit, meaning it has successfully discovered and built a product that people want to buy, [and that it’s in the process of speculating on total market size],” he said. “Until it does that, all the rest of the company-building stuff doesn’t make any sense.”

Horowitz and Andressen first met in the earliest days of Netscape, which Andreessen famously cofounded after engineering the first widely-used Web browser at the University of Illinois at Urbana-Champaign. Horowitz, one of Netscape’s first employees, went on to cofound the software company OpsWare with Andreessen, where Horowitz long served as CEO. Opsware sold to Hewlett-Packard in 2007 for $1.6 billion.

More recently, Andreessen — who also sits on the boards of Facebook and eBay — cofounded Ning, a software startup whose platform allows users to build their own social-networking Websites. Ning has raised $104 million over the last five years, including from individual investors, Allen & Co., and Legg Mason Wood Walke.

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LBO-Backed Bankruptcy List: On Pace to Double Last Year’s Total [Quarterly Stuff]

Fund Performance Data Dump [Quarterly Stuff]

Fund Performance Data Dump (Part Deux) [Quarterly Stuff]

VC-Backed IPOs Rise Infinitely in Q2 [Quarterly Stuff]

Private Equity Activity Falls in Q2 [Quarterly Stuff]

Global PE Fundraising Rises in Q2 [Quarterly Stuff]

PCG Pays $2 Million To Escape New York Probe [Buy Yourself Out of Trouble!]

Escape from New York (Part II) [It's That Easy!]

88% of PE Firms Have Cut Portfolio Company Headcount [Studies]

Los Angeles PE Firms To Buy Century-Old Tulsa Pipe Company [Deal Scoops]

Highland Capital Delays Fund Close [Tough Times]

Ashmore: Private Equity Is Deep Underwater [Tough Times]

Of Work Ethic and Private Equity [Essays]

Bain Capital Offers To Cut Size of Co-Invest Fund [peHUB Approves]

KKR Proposes A Double Secret Reverse IPO [About-Faces]

Chatting Up The KKR “IPO” [Reuters Insider]

Report: Dave Mosher Leaving Madison Dearborn [HR]

Wall Street’s Oldest Fund Placement Biz To Close [Bye Bye Merrill]

Fundraising Updates: Centerbridge, Domain, Insight Equity & More… [Scoops]

Blood, Sweat & Capital Takes The Stage [New Firms]

Bill Gates on Raising Successful Kids [Randomness]

Solar “Bloodbath” Expected by Year End [Predictions]

Not So Clear: Verified Identity Pass Shuts Down [VC Fail]

Social Network TeeBeeDee Shutting Down in Two Weeks [VC Fail]

Paul Allen Jumps Back in Founder’s Seat with Software Startup Xiant [Second Acts]

Audio From Nantucket VC Panel [VC Notables]

Q&A With Saban Ventures’ Craig Cooper: Half of L.A. VCs Struggling to Raise Funds [Surprised?]

Fundraising a Long Slog, Including for Ex-Googlers [More of the Same]

Did VC Fund Size Cuts Work? [In-Depth Look]

VCs Losing Confidence in “Broken” Industry [Studies]

Holy Kaw! There’s a Lot of Porn on Twitter [TwitHacks]

Study Disputes The Value of VCs “Buying Local” [Go Go Globalization]

Jurvetson Propelling $60 Million SpaceX Round [New Money]

The Return of Redlasso? [Second Tries]

You Bet Your Ass, Highway 12 Backs Med Device Company ["It Feels Good"?]

Steve Jobs May be in Memphis [WSJ Reports]

Tagged In Today’s NY Times [Follow-Ups]

Anderson Cribs from Wikipedia in New Book “Free”

[From the Irony Department]

A Twist on the Standard Biz Plan Competition [Contests]

VC Landscape Teeming With Ex-Googlers [No Shit]

Google Cofounder’s Wife Advertises Her Company…On a Blimp [Randomness]

Founders Fund: Eyeing Life Beyond Consumer Web Startups [Interviews]

Westly: We’ll Have a Dozen Cleantech IPOs [Hopefuls]

Cleantech Investment Bank Launches, Complete with PE Practice [Wall Street is "Good For The Family"]

Dollars Tick Upward for Clean Tech Investments [More Hopefuls]

Cleantech: What GE’s Skillern Said [GE Also Hopeful]

Do VCs Take The Summer Off? Entrepreneurs Say Yes. Data Says No. [Its Like School!]

peHUB Scouts Out with DEMO in Boston [Events]

Weekly Downgrade Wrap-Up [Regulars]

The True Story of True Ventures [Q&A]

Six Quick Questions with Navin Chaddha of Mayfield [Q&A]

NEA: Lonely at the Top, and on Sand Hill Road [Movin On Up]

How to cold call a VC [Links lists]

Apollo clawbacks? [Links lists]

Sand Hill Slave is back [Links lists]

Slipping a table under the table [Links lists]

Fortress Investment Group managing Jackson’s money? [Links lists]

Bain Capital’s “hairy” GOME situation [Links lists]

PPIP: Not dead yet [Links lists]

Dear Madoff Victims, Get over it [Links lists]

Greed will come again [Links lists]

7 Tips on Improving Your LP Relations [Vox Populi]

The Systemic Risk of Venture Capital [Vox Populi]

Keep Browsing: peHUB Rewind June 19, peHUB Rewind June 12, peHUB Rewind June 5, peHUB Rewind May 29, peHUB Rewind May 22, peHUB Rewind May 14, peHUB Rewind May 8, peHUB Rewind May 3, peHUB Rewind April 17, peHUB Rewind April 10, peHUB Rewind April 27

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Another that looks to hold potentially even more promise is a drug-design technology firm called Numerate, whose technology — from what I gather — is far enough along that it will be exceedingly hard for competitors to catch up. That’s largely because the company been tinkering with that technology for seven years; it emerged from a failed version of its earlier self called Pharmix, a biotecth that burned through $20 million of capital from Mohr Davidow Ventures among other investors.

Some but not all — including MDV — stayed for the ride at Numerate, which has already raised $9.5 million over two funding rounds since November. They may finally see that commitment pay off, too. Last month, the company was selected to negotiate what may be up to a $6.5 million grant from the Defense Threat Reduction Agency, a unit of the Department of Defense. It’s already received a much smaller grant from the National Institutes of Health. And Numerate is in discussions with nearly every big pharmaceutical company in the world, four (that we can’t disclose publicly) with which it is already collaborating.
 
So what does Numerate do, and how? Earlier this week, I spoke about the company with CEO Guido Lanza, who’d cofounded and served as CTO of Pharmix. I also rang Adam Grosser, a managing partner at Foundation Capital, which has become Numerate’s leading investor despite that Numerate is so far from the Foundation’s typical focus areas that there’s no place for it –  yet — on the venture firm’s Website.

Adam, why Numerate?

AG: For starters, the drug discovery process — particularly the R&D process — is broken. The FDA has approved about 20 drugs per year from 1980 through 2006. Meanwhile, the R&D expenditures required for 20 new drugs in 1980 were $3 billion and by 2006, they were $41 billion. The process isn’t working. It’s not viable to spend $2 billion to get a drug through the process.

Why has the process grown so expensive?

AG: Largely because of the human decision-making and intuition involved. You have to identify a target, then have a sense for what might bind to it and have the effect of expressing or inhibiting something, and you have to be right. And that’s just the very beginning of the process.

In fact, the process takes so long that intellectual property laws are having to be modified. I was talking with a scientist at Stanford recently who began work on a target 16 years ago and the drug will get approved by the FDA this year. Because patents are good for 17 years and most patents are patented at the beginning, the [U.S. Patent and Trademark Office] has had to come up with this crazy process of extensions; otherwise, no one could capitalize on their own work.

So how is Numerate trying to speed up the process?

AG: It’s basically narrowed down the process of selecting which drug is likely to work from a very large set of drugs. Its technology can quickly discern what makes a small molecule toxic, how you deal with bias and noise and data from a tech standpoint.

Put another way, it’s taking the human decision-making piece and transforming it into a data-driven approach where you can take billions of ideas and evaluate them. In the end, it has solved the computer science problem of drug discovery.

But isn’t there also a bottleneck issue at the FDA that needs to be overcome?

I don’t think it’s the FDA’s fault. They’re necessarily cautious. You don’t want to put things in people that are risky. But if you could take five to seven years out of the front end, you could get to clinical trials much more quickly.

Guido, how does the business side of things work, and how well-protected is your company?

GL: Actually, most of our information we’re able to keep as trade secrets because we don’t sell the technology. We partner on the output. A pharmaceutical company will come to us with an idea — maybe they are looking for an anti-cancer drug that hits the following targets but not these other targets yet is localized to the brain. That might be a specification we’d start with. From there, we go and design a compound using this technology they’ve never had access to. If it performs as we say it will, we receive eventual royalties on the sale of the drug. That’s the coin of the realm in our industry: compound intellectual property.

What can you say publicly about your technology?

We’re basically shifting the trial and error piece to the computer, and running that whole process on the cloud, through Amazon. We have access to as many computers as we want at any given time. If we need 500 to 1,000 computers for a month to tell us which compound is worth making, we can do that, and we can easily do five to 10 projects a year as a result. The next generation of our technology, which we’re working on now, will be even more of an accelerator for us.

How many compounds can most other biotech companies produce in a year’s time?

GL: Small biotechs can work on two or three maybe, while large ones like Genentech may work on tens of projects.

So what’s happening in that time that you’re producing a compound for a customer?

GL: Based on the specifications we’re given, our chemists then begin to look at a focused area of about a hundred billion compounds, which takes about a month. Then we start to look at all these ideas and our [technology] begins to rank them by likelihood of success. Over the next couple of months, working around the clock, the computer is combining different ideas and it’s getting smarter and smarter as it goes. Then you have to go to the lab and make the compounds and that takes a couple more months.

Why will Numerate work where Pharmix failed?

GL: Pharmix, which developed the previous generation of technology that we’re using now, had the wrong business model. We thought then that if you have something that generates small molecule drugs, why  not use it yourself? But there were reasons why that wasn’t the right model, in terms of which risks we could take on and mitigate. Other companies are better at picking out the next cancer drug.

Who are Numerate’s most direct competitors?

GL: There are really two in question: people who outlicense compounds — traditional biotechs, for example, and people who will run the traditional process for you, often in India or China. We have lost a deal when a company trying to do a drug design has gone out and licensed a compound that’s farther along, using a firm [abroad] because it can be much cheaper. The problem is that you don’t necessarily wind up with something you can use. There’s a design and not just an execution piece that [pharmaceutical] companies should be focusing on.

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Last month, the private equity lobby supported the government’s requirement that buyout firms register with the SEC, even while arguing that “private equity firms do not create systemic risk.” Today, however, the PEC came out against proposed FDIC guidelines for buyout firm investments in banks, saying that they go to far and would be counterproductive.

“We hope that the comment period yields changes that facilitate the flow of private capital into the banking system, consistent with the Administration’s other efforts to address the financial crisis,” said PEC president Doug Lowenstein.

To recap, the proposed rules include a minimum three-year hold time, capitalization requirements, cross-guarantees for firms with multiple banks in its portfolios, and extensive disclosures, particularly regarding ownership structures.

To be clear, there is no surprise in these guidelines. We had a pretty decent idea that Sheila Bair was going for these exact guidelines a few weeks ago. My hunch is that private equity firms are going to push more on certain of the rules than others.

The ones that should probably be scaled back are the cross-guarantees between portfolio companies-something a buyout pro does not currently do with portfolio companies; this isolation of funds and investments could be what’s keeping some funds in the black.

But the biggest bone of contention will like to be with the capitalization requirements, which, at leverage ratio of 15 percent and capital of at least 6 percent of risk-weighted assets, is stricter than what most buyout firms would be willing to adhere to and stricter than what is required of other investors in banks (for example, wealthy individuals or publicly traded entities).

As for the others: A buyout firm cannot rationally argue that a bank under its ownership should be able to lend to it. Why even risk the appearance of impropriety when the “leverage” part of leveraged buyouts is under so much scrutiny already? A bank giving its owner favorable terms on debt would only serve to fuel that fire.  I doubt the PEC and buyout firms will argue against this one. Besides, I believe Blackstone, Carlyle, et al agreed in their recent purchase of BankUnited that the bank subsidiary would to its parent firm.

The same goes for disclosures. The move toward greater transparency for buyout firms shouldn’t stop with Blackstone, Carlyle and KKR making their annual reports public. There’s no problem in the government knowing who owns what piece of which bank..

The PEC declined to comment further on its statement.

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Happy July 4th!

Bloggers Gaining Steam: Goldman Sachs responds directly to blogger Zero Hedge. (Zero Hedge)

Lists: Dumbest Moments in Business, Mid-Year 2009. I think we could add a few buyout moves to this list as well… (Fortune)

Fighting Fund of Funds? “Private equity funds of funds are increasingly under fire. Not only do they reduce returns, but they do not minimise risks” (IP&E)

Hours Versus Heads: The decline in aggregate hours worked has been frighteningly consistent over recent months. (Freakonomics)

Student Loan Horror Story: How a law school grad that passed the bar is being denied admission because of his $400,000 student loan load. (Law Blog)

What Did You Buy This Year: Ya shoulda bought high yeild, the Economist blog writes. (Economist)

Running a Hedge Fund From His Dorm? “Now, in addition to attending Pomona College, Graves manages Caelum Capital, a five-man $4.7 million long/short equity fund.” (Dealbreaker)

Sheila Bair: She’s a hero for taxpayers. (Clusterstock)

Long Live Secondaries? Buy-and-hold is dead. What does that mean for private equity? (Minyanville)

Simple Solution for S&P and Moody’s? “The truth is that the buy-side also wanted inflated credit ratings.” (Clusterstock)

Novelty at Toys ‘R’ Us: The KKR-backed company’s new $950 million senior note offering’s structure “could prevent the new bonds -which will be Toys “R” Us’ largest and most liquid issue - from being deliverable into existing CDS contracts.” (Debtwire)

PE Likes Pipes: Old news, when is someone going to study the kinds of returns buyout funds have gotten on such deals (Note to self…) (Reuters)

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Company: Yell Group PLC
Sponsor: Apax Partners
Downgrade: S&P lowered its long-term corporate credit ratings to ‘B’ from ‘B+’.
Highlights: “The downgrade reflects our concerns about the faster-than-expected deterioration of Yell’s operating performance and liquidity profile, which is no longer commensurate with a ‘B+’ rating,” said Standard & Poor’s credit analyst Manuela Gabetta.

Company: Talecris Biotherapeutics Inc.
Sponsor: Cerberus Capital Management and Ampersand Ventures
Upgrade: S&P raised the company’s corporate credit rating from ‘B+’ to ‘B’.
Highlights: “The action reflects Talecris’ improving operating performance and the removal of plasma supply constraints, due to the company’s successful efforts in developing its plasma collection platform and a supply agreement with CSL, that previously limited its production volumes,” said Standard & Poor’s credit analyst Arthur Wong.

Company: Broder Bros.
Sponsor: Bain Capital Inc.
Withdrawal: S&P withdrew its ‘SD’ corporate credit rating and ‘D’ issue rating on the company’s $225 million senior notes because it no longer files public financial statements.

Company: Jobson Medical Information LLC
Sponsor: Wicks Group
Withdrawal: Moody’s confirmed the company’s ratings and withdrew its ratings “for business reasons.”

Previously:
Weekly Downgrade Report 18
Weekly Downgrade Report 17
Weekly Downgrade Report 16
Weekly Downgrade Report 15
Weekly Downgrade Report 14
Weekly Downgrade Report 13
Weekly Downgrade Report 12
Weekly Downgrade Report 11
Weekly Downgrade Report 10
Weekly Downgrade Report 9
Weekly Downgrade Report 8
Weekly Downgrade Report 7
Weekly Downgrade Report 6
Weekly Downgrade Report 5
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1

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The latest insult to legal accountability came yesterday, when Cuomo announced that PE consultant Pacific Corporate Group had agreed to: (a) Pay $2 million, and (b) Sign Cuomo’s much-ballyhooed Code of Conduct. In exchange, PCG was promised that Cuomo would not pursue criminal or civil prosecution related to PCG’s past activities in New York or anywhere else (like, say, California – although sources say that Jerry Brown is beginning to look into that state’s placement agent skeletons).

What had PCG done wrong? Well, officially nothing – since PCG was required to neither confirm nor deny any of the AG’s findings. Kind of like how The Carlyle Group didn’t do anything wrong, even though it cut a $20 million check. That Cuomo must be awfully persuasive. Maybe he actually could resolve the budget mess, by squeezing cash out of every other PE firm doing business in New York, given that no actual wrongdoing is needed as a prerequisite…

Unofficially, PCG was accused of helping enrich indicted “placement agent” Hank Morris. Specifically, Morris was given an undisclosed 5% ownership stake in a $750 million co-investment vehicle funded by New York State Common Retirement Fund, and formed/managed by PCG and hedge fund The Clinton Group. Basically a kickback, in that Morris’ involvement was required in order to secure the $750 million commitment.

This is where it gets a bit tricky. PCG and Cuomo say that former PCG executive Steve Moseley was aware of Morris’ involvement, and concealed it from both PCG and New York pension fund overseers (neither uses Moseley’s name, but we’re all friends here). Moseley declined to comment yesterday, but said last month that he had “been assured by the Attorney General of New York that I am not a target of the ongoing industry investigation.”

Moreover, a separate source tells me that he does not believe Moseley knew about Morris’ involvement. How could that be? The argument is that Morris’ stake was actually coming from Barrett Wissman, a Texas hedge fund manager who held a 10% position in the co-investment vehicle (and sat on its investment committee). As such, Moseley could have been aware of Wissman without being aware of Morris (I’m a bit agnostic toward the whole situation right now).

The irony here is that Wissman was supposedly brought into the co-investment fund as a sort of overseer, because of staffing instability at PCG. As the fund was being formed, Moseley and three other senior PCG execs all bailed (part of a long line) – although only Moseley was allowed out of his non-compete agreement (he went to Clinton Group, in order to keep working on the co-investment fund).

Wissman has since plead guilty to securities fraud, and is almost certainly the source of Cuomo’s belief that Moseley was aware of the situation. But, again, we have Moseley saying he’s not the target of an investigation. If Cuomo believes his own argument, then why no indictment against Moseley or PCG as a whole? Ditto for Steve Rattner and Quadrangle? Or David Leuschen and Riverstone? Or pick a name at Carlyle?

Could it be that Cuomo is being a bit too loose with some of his punches, because he needn’t prove them in a court of law? Or does he just want to use these “code of conduct” signees in his next political campaign?

Make no mistake: I’m thrilled that Cuomo is bringing a lot of dirty secrets out into the open. What I don’t understand is what he’s doing post-exposition. Again, vexing.

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* David Callaway: Time to worry. Banks are recommending each other’s shares again.

* Q2 data dump: 32 pages of M&A and private equity deal data, league tables, etc.

* Morning Call: U.S. futures lower ahead of June jobs data, London falls early, European shares drop, the Nikkei closes down 0.6% and Chinese stocks hit 13-month high.

* New photos of the Madoffs at play. Could be worse, I guess. At least they’re not nude photos of the Madoffs at play.

* The EVCA has released a new code of conduct for placement agents. Here you go.

* Kip Kirkpatrick’s decision to run for Illinois State Treasurer won’t trigger a keyman vote at Water Street Healthcare Partners, the private equity shop he co-founded and is now leaving. Apparently the only listed keyman is fellow co-founder Tim Dugan. Kinda odd, but ok. Still doesn’t mean all LPs are thrilled that Kirkpatrick is leaving less than a year after Water Street closed on a new $650 million fund.

* VC Bail Alert: Vineet Buch is leaving BlueRun Ventures to join Like.com.

* Where in the World: I’ll be moderating a session at the Fortune Brainstorm Tech conference later this month in Pasadena. Great agenda. Hope to see some of you there.

* Rational markets skeptic Justin Fox was on The Daily Show, filling in for an ill Henry Waxman. Here’s the video:

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The 38-year-old got his start as an entrepreneur at the age of 25 and successfully co-founded three VC-backed companies that were eventually acquired or went public: VXtreme, a VC-backed streaming media software company; iBeam Broadcasting, an Internet streaming media provider; and Rivio, which provided Web-based services to optimize operations for small businesses.

Chaddha made the shift to venture in 2003, joining Mobius Venture Capital as an EIR, then transitioning to venture partner. A year later, he became a general partner at Gabriel Venture Partners, then joined Mayfield as a managing director in September 2006.

Chaddha was named No. 11 on Forbes’ Midas List this year, down one spot from the prior year, and in May he was given a Young Global Leader Award from the World Economic Forum.

I caught up with him in San Francisco at last month’s Venture Capital Investing Conference, where he was was co-chairman, and asked him six quick questions (three that were business related and three that were just for fun).

JUST BUSINESS

Q: What do you mean by the term “energytech” and how does it differ from cleantech?

A: Energytech is the application of technology to the energy industry, which produces $6 trillion in revenue. Cleantech, or investing in renewable energy sources, is a subset of energytech. We believe an end-to-end approach of leveraging technology to make the entire value chain more efficient is the right way to go—from generation to distribution to consumption of energy.

Q: Do you think most cleantech investments are misguided because they rely so heavily on government policies or subsidies?

A: Some cleantech investments that are capital intensive and require project finance or rely on government policies or subsidies are not looking suitable for VC investments in the long run. The ones that make sense are economically viable without any subsidies, such as energy-efficiency investments.

Q: Do you think the venture industry is overcapitalized?

A: I think the industry is overcapitalized and it has to shrink from the current $25 billion to $30 billion in annual investment. A healthy level would be around $15 billion annually.

JUST FOR FUN

Q: Where do you plan to go on vacation this summer?

A: Banff [in Alberta, Canada] or Switzerland. I have family coming in from Delhi, where it’s 120 degrees, so they want to go somewhere cooler.

Q: You played competitive cricket in college. Do you still play?

A: Yes, I play on and off about every two weeks or so. Some of my friends are trying to get me to join the Indian Cricket League, which has about 50 teams and plays once a week.

Q: What position do you play?

A: I’m an allrounder. I do bowling [pitching] and batting.

(This item originally appeared in the July issue of Venture Capital Journal. For a free trial, click here.)

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