Benchmark poaches best VC under 40′ from Accel: Peter Fenton has Wily Technology and JBoss to his credit

He’s been a venture capitalist for just seven years and has already had two exits worth a combined $725 million. Oh, and he’s just 33 years old.

Meet Peter Fenton, the star that got away from Accel Partners and the newest member of Benchmark Capital’s general partnership.

Neither Fenton nor Accel would comment on why he decided to leave, but a source close to Fenton says it probably came down to staying at a firm with a hierarchical management and compensation structure (Accel) or going to a firm with a flat structure (Benchmark).

“My strong suspicion is that it was about his place in the firm and how the compensation was divided up,” the source says. “Why would a star stay there?”

Those who know Fenton speak highly of him. “He’s the best VC under 40 that I know of,” says Raman Khanna, a general partner at Diamondhead Ventures who sits on the board of Web services company Reactivity with Fenton. “He’s very focused and works hard for his companies.”

“He’s as strong a VC as there is out there,” adds Nick Sturiale, a general partner at Sevin Rosen Funds, who sits on the board of open source software developer Xensource with Fenton. “He does good deals, has great syndicates, is well liked by other VCs and is respected by entrepreneurs. Benchmark is lucky to get him.”

The head of a Silicon Valley venture firm who knows Fenton only by reputation quipped: “When I saw the announcement, my reaction was: Why didn’t I think of moving on him?'”

Fenton, who had been with Accel since 1999, left the Palo Alto, Calif.-based firm at the top of his game. Two Accel portfolio companies that he led investments in were snapped up for hefty amounts in the past two months: Wily Technology and JBoss.

Wily, a maker of performance management software, sold to CA (NYSE: CA) for $375 million in cash in March. Wily had raised about $65 million from six venture firms, with Accel participating in six of the eight rounds from 2000 to 2005. Assuming the VCs owned at least 80% of Wily, they saw a 4.6x return on their investment after six years.

Fenton saw a much bigger hit with JBoss, an open-source software developer that signed a definitive agreement two weeks ago to be purchased by Red Hat (Nasdaq: RHAT) for $350 million in cash and stock (plus another $70 million if it meets performance milestones). JBoss had raised just $10 million from Accel, Intel Capital and Matrix Partners in a Series A in February 2004. Assuming the three investors owned one-fourth to one-half of JBoss, they will see a return of anywhere from 8x to 17x (not counting the potential $70 million bonus) after just two years.

Limited partners in Accel’s eighth fund – which invested in JBoss and Wily – must be jumping for joy over the two exits. But LPs in the firm’s ninth fund must be scratching their heads as to why Accel let Fenton get away. (Accel IX, a $400 million fund, held a final close in November 2004 and counted Fenton as one of its general partners.)

Asked if any of Accel IX’s LPs expressed concern about Fenton’s departure, Managing Partner Peter Wagner said: “LPs are always concerned about what we’re doing.” Pressed for any specific concerns, Wagner replied: “That’s not something I’d like to get into.”

Wagner had nothing but praise for Fenton. “Peter’s a good guy and Benchmark is a good firm,” he said. “We think he will do well there and we wish him the best.” As for the JBoss and Wily exits, Wagner said: “They were both great deals for Accel and Peter did great work on both of them. He deserves the credit for their success.”

With Fenton’s departure, Accel now has eight partners on what it describes as its Silicon Valley team: Wagner, Jim Breyer, Kevin Efrusy, Carl Everett, Ping Li, Arthur Patterson, Theresia Gouw Ranzetta and Jim Swartz.

Accel will replace Fenton if the right person comes along. “We’re always looking to bring on talented investors at both the junior level and the senior level,” Wagner said. “That was true before and it’s true now.”

The addition of Fenton brings Benchmark’s general partnership up to seven. It had slipped to six GPs when the firm raised its $400 million fifth fund in 2004, with David Beirne and Andy Rachleff reducing their roles. Fenton joins Alex Balkanski, Bruce Dunlevie, Bill Gurley, Kevin Harvey, Bob Kagle and Steve Spurlock.

Benchmark’s GPs declined to be interviewed for this story. In a press release announcing the hiring of Fenton on April 20, Harvey said: “We are absolutely thrilled to have Peter join our team at Benchmark. He is a superstar.”

It wasn’t clear last week what will happen with Fenton’s board seats. Besides JBoss and Wily, Fenton invested in Aptana, Apexon, Coremetrics, Mendocino Software, Oak Pacific Interactive, Reactivity, Terracotta, Xensource and Zimbra, according to Benchmark’s website.

Fenton also sits on the boards of Aceva Technologies and Xamlon, both of which are backed by Accel, according to Thomson Financial’s VentureXpert database. (Thomson Financial is the publisher of PE Week.)

In at least two cases, Benchmark is an investor in a company where Fenton sits on the board: Terracotta and Zimbra.