For over a month, venture capital market watchers have speculated as to whether or not Accel Partners could persuade enough limited partners to vote in favor of its controversial fund bifurcation proposal. Last Monday, however, Accel’s executive advisory board put such punditry on ice by voting unanimously to shelve the plan in favor of a 32.1% capital cutback on its $1.4 billion Fund VIII and on that vehicle’s $200 million strategic side fund.
Rather than simply telling limited partners that it anticipates reduced capital calls, Accel will make the cut official in the upcoming weeks by asking for investor ratification. There are no significant challenges expected.
“Between people who had already supported it and those who said they’d support it, the split proposal did have the votes,” says Alan Austin, general partner and chief operating officer with Accel. “But it’s not about winning and losing, it’s about what is the right thing to do… the outcome that will deal constructively with the issues and create the greatest satisfaction in the LP base.”
Indeed, the fund cut seems to have already soothed much of the rancor that had developed as a result of the fund split proposal.
“This is what we’d hoped for, so we’re glad that Accel did what I felt was in everyone’s best interest,” says one institutional investor. “I wasn’t always too confident it would happen, but I guess they saw the light.”
Another Accel investor adds that the decision proves the firm is made up of “reasonable people” who recognize that there is little reason to “alienate half of [their] LPs.”
Rick Boswell, a general partner with St. Paul Venture Capital and a member of the Accel advisory board, said the reduction move was proof that Accel is intent on aligning its interests with those of its LPs.
“We saw trade-offs involved with all of the options that were on the table,” Boswell explains. “I didn’t feel there was a clear benefit to any one choice over another, but at the end of the day, management of Accel listened carefully and made its decision.”
Boswell adds that he also would have been content if Accel had simply left the fund alone altogether, arguing that the recent shift away from smaller funds is a poorly thought-out phenomenon.
Not only does this fund mean that Accel LPs will now owe Accel less overall capital and management fees, but it also has consequences for other VC firms that were waiting to see if fund splits were a viable alternative to fund cuts.
“This puts a nail in that coffin,” sums up an investor.
Another source says firms that continue to hold back from cutting their funds will have to justify how they are going to invest their billions of dollars when groups like Accel have deemed such spending to be unwise.
Contact Dan Primack at Daniel.Primack@tfn.com