Ariva revises early stage model

Founders of a new early stage fund say they plan to revamp the prevailing venture investment model through a structure that could provide greater rewards for partners in exchange for more time-intensive commitments to portfolio companies.

Ariva Partners, a Portola Valley, Calif.-based firm founded by venture capitalists Ajit Shah and Robert Simon, is seeking to raise $150 million for an inaugural fund that will make seed stage and follow-on investments in startup tech companies.

Fund founders say that they intend to differentiate themselves by limiting the number of portfolio company board seats per partner to a maximum of three. The idea, says Shah, is to ensure that startups get sufficient early stage attention from seasoned entrepreneurs who can guide their growth.

“It’s really not practical for people who are sitting on 10-plus board sets to be investing a half a day or a day per week working with entrepreneurs in early stage companies,” says Shah, a former general partner at Worldview Technology Partners. At Ariva, partners are expected to spend at least one day per week with each portfolio company.

Currently, six venture partners, each with a background as senior executives or founders of technology companies, will make investments for the fund alongside Ariva’s co-founders. They are Andy Ludwick, former CEO of Bay Networks; Mike Pliner, co-founder of software developer Verity; Kumar Ganapathy co-founder of VxTel; Jeff Clavier, a software venture capitalist; Sass Somekh, former president of semiconductor equipment maker Novellus; and Teddy Shalon, founder of drug developers Synteni and Neosil. Each partner manage between $15 million to $20 million of invested capital. Ariva will cover their expenses, but will not pay partners a salary.

To create incentives for partners, Ariva plans to share half of the carry interest, a contrast from the typical setup at firms, in which a venture partner typically receives about 1%, says Simon. Shah says that the goal is to ensure that venture partners’ interests are aligned with those of investors.

Shah and Simon, a former director at Alta Partners, have been “test-driving” the Ariva model for the past year. One early investment was in Virident Systems, a company developing low-power servers for Internet applications that raised funding in April from Artiman Ventures. Another portfolio company is Osteogenix, a developer of bone therapy products incubated by venture partner Teddy Shalon.

The fund will make seed investments of as little as $500,000 and participate in follow-on rounds. It will cap total funding per portfolio company at about $8 million.