Bay focuses on portfolio after partners leave

Neal Dempsey, managing general partner of Bay Partners, says that the firm is focused on managing its funds successfully following the departures of three of the firm’s six general partners.

General Partners Eric Chin, Salil Deshpande and Sandesh Patnam simultaneously submitted letters of resignation three weeks ago, as PE Week previously reported.

“Our emphasis now is to manage successfully what we consider our two viable funds and to manage those successfully to the outcomes we expect,” Dempsey says. “That may bode well for a future fund. We have our assignment now to manage this fund as it is and drive it to the results.”

Dempsey says that he does not know why the three partners quit. Chin and Deshpande declined to comment and Patnam could not immediately be reached for comment.

When asked if compensation played a role in the departure of Chin, Deshpande and Patnam, Dempsey says: “I have no idea. This is all speculation. My guess is that you’re hearing this from either other firms or other people who know something maybe about how venture capital partnerships have worked in the past. I really don’t know.”

Dempsey declined to discuss how Bay Partners determines the compensation of its investors.

Dempsey is speaking with limited partners about the situation at Bay, but declined to discuss the nature of those conversations. “Well I think that’s obviously confidential information, but you can rest assured that we are talking to them about status of the companies we have invested in and exactly what has transpired at those companies,” he says. “That’s what’s most important to them and most important to us.”

Limited partners in Bay X and Bay XI were either unavailable for comment or declined to comment about the general partner departures.

Dempsey says that the departure of the three general partners did not trigger a key man clause that might allow limited partners to halt further investment from Bay’s 11th fund. As PE Week previously reported, this runs counter to the reports of three sources who claim to be knowledgeable about the situation at Bay, who say that the key man agreement has been unquestionably been triggered. The departures of the three GPs leaves behind Dempsey, Managing General Partner Atul Kapadia and General Partner Neil Sadaranganey.

“The key man clause, as a legal matter we’re not sure that it has been triggered, but as a practical matter it probably is,” Dempsey says.

When pressed for further explanation on how the clause might have been avoided, Dempsey pointed to the nature of the partners’ resignation letters.

“The key man clause was not triggered,” he says. “Salil was not part of the key man clause. It was only the other two. They resigned with the understanding that they would keep their board seats. We decided that that doesn’t make good sense. They’re not part of the firm, how can they manage the board seats under those circumstances?”

Both Chin and Patnam had two board seats each, Dempsey says. Deshpande also has two board seats that he will maintain, Dempsey says. Another source familiar with the firm’s plans says that Deshpande will also maintain a number of board observer seats.

Dempsey says that the firm does not have plans to hire partners to replace the three that left. “We haven’t really talked about that,” Dempsey says.

Dempsey, 68, says that he has been busy maintaining an active role in managing the firm’s 10th and 11th funds, despite reports that he was all but retired. “I am very active,” he says. “I think you can talk to anybody of our LP base or any of the company’s boards that I am on and you’ll find that I’m not retired at all. I don’t know where people get that. It’s this inaccuracy of reporting in today’s world.”

Dempsey says that he holds five board seats on startups that were financed from Bay X and four startups backed by Bay XI. The firm raised about $390 million for Bay X, which closed in 2001, and $290 million for Bay XI, which closed in 2005, according to Thomson Reuters (publisher of PE Week).

“We have a lot of active investments that will be harvested in the next year or two years,” he says. “I’m driving all of those that are the main value drivers.”

Two sources familiar with Bay’s portfolio say that Dempsey did not actively source a single deal for fund XI. They say that Dempsey sat on the board of enterprise software company Elastra and online accounting startup Corefino, which has recently run into difficultly and has gained at least two additional board seats from the partners that left Bay.

Dempsey says Bay Partners is focused on managing its current funds but may consider raising another venture fund in the future.

“You never know,” he says. “You certainly never want to say never.”