After three years, Draper Fisher Jurvetson appears to be winding down MeVC.com Inc., a company designed to create a series of publicly traded venture capital funds.
“I understand that MeVC.com is being wound up,” says John Grillos, portfolio manager and chief executive officer of MeVC Draper Fisher Jurvetson Fund I. “In what format, I do not know, because I don’t believe they have decided yet.” Tim Draper, a founding partner in Draper Fisher Jurvetson and a director of MeVC.com, declined to comment directly on the matter.
There are four pieces to the MeVC puzzle. One is MeVC.com, a Draper Fisher Jurvetson portfolio company. Two is MeVC Draper Fisher Jurvetson Fund I, which was raised by MeVC.com Inc. to offer venture capital investments to individual investors through a retail mutual fund. Three is MeVC Advisers, which the fund hiredto be its investment advisor. Four is the sub-advisor hired by MeVC Advisors to actually make and manage MeVC Draper Fisher Jurvetson Fund I’s venture capital investments. That sub-advisor goes by the name of Draper Fisher Jurvetson MeVC Management Co., also known as Draper Advisers.
After a barrage of announcements last week, MeVC Draper Fisher Jurvetson Fund I emerged with a completely different management structure. With the exception of the name, all ties with Silicon Valley-based venture firm Draper Fisher Jurvetson appear to have been severed.
The association between MeVC.com and MeVC Draper Fisher Jurvetson Fund I was never direct. A spokesman for Draper Fisher Jurvetson says that “MeVC.com has never had a relationship with the fund beyond that they created the fund and the fund was managed by MeVC Advisers and Draper Advisers.”
However, those entities seem to have folded, and it is unclear what role MeVC.com will serve now.
The spokesman referred all questions about MeVC.com’s continuing role to Andy Singer, one of three MeVC.com board members. Singer did not return requests for comment. Draper Fisher Jurvetson has realized no liquidation event for MeVC.com and has not written it off from its portfolio.”We’re not saying that [MeVC.com] is not a viable entity.” says the spokesman.
The action started last Monday when Peter Freudenthal and Paul Wozniak resigned from their positions with MeVC Draper Fisher Jurvetson Fund I, MeVC Advisers and MeVC.com. Freudenthal and Wozniak sat on MeVC Draper Fisher Jurvetson Fund I’s board of directors and ran MeVC Advisers and its estimated eight-person staff.
“I think Peter and Paul surprised everybody with their little announcement,” says Grillos. Freudenthal is a cofounder of MeVC.com along with Singer.
On Wednesday, MeVC Advisers resigned as the investment advisor for MeVC Draper Fisher Jurvetson Fund I. Prior to that announcement, MeVC Advisers had managed the day-to-day operations of the fund, such as keeping shareholder records and filing tax returns, and MeVC Advisers had hired sub-advisors to manage the fund’s cash assets and venture capital investments.
MeVC Advisers was basically the conduit for everything that happened with the money of the shareholders of MeVC Draper Fisher Jurvetson Fund I, and MeVC Advisers was the connection between MeVC Draper Fisher Jurvetson Fund I and MeVC.com. When MeVC Advisers resigned, Draper Advisers also ceased to exist, and the shareholders of MeVC Draper Fisher Jurvetson Fund I essentially had no staff managing its money or investments.
By the end of the day, the fund’s board had created a plan to hire all of Draper Advisers’ former employees and four of MeVC Advisers’ former employees to create an internal staff for MeVC Draper Fisher Jurvetson Fund I. This group of people replaced the contractual relationships.
Since February of this year, Draper Advisers and MeVC Advisers have taken heat from dissident shareholder Millennium Partners LP, a New York hedge fund. (PE Week has covered the conflict in its March 25, April 1, April 15 and April 29 issues.) Millennium initiated a February lawsuit against MeVC Advisers, alleging it charged the fund’s shareholders excessive management fees.
Speculating over Freudenthal and Wozniak’s reasons for resigning, Grillos says, “Remember, MeVC Advisers got sued by that hedge fund. Maybe that’s part of it.” A Millennium spokeswoman says she does not know what direction Millennium will now take with the lawsuit.
Incidentally, the resignations of Freudenthal and Wozniak may also have been prompted by disagreements at the board level over the direction the reorganization should take, according to sources familiar with the situation. Freudenthal did not return calls for comment and PE Week was unable to reach Wozniak for comment.
In March, the hedge fund successfully blocked a proxy vote that would have renewed MeVC Advisers’ contract as MeVC Draper Fisher Jurvetson Fund I’s investment advisor. At the time, Millennium said it sought a return of uninvested capital, a change in the fund’s fee structure and a replacement of MeVC Advisers as the fund’s investment advisor.
Under the proposed new structure of MeVC Draper Fisher Jurvetson Fund I, the fund would no longer have an outside investment advisor, and the fee structure would no longer exist. Grillos says that the board was scheduled to work out a budget in a meeting on Friday (June 21st) to cover the costs of running the fund in house, and he says the board will be “focused on keeping the budgets at a level below the old management fee.”
As a result of apparently severing ties with Draper Fisher Jurvetson, MeVC Draper Fisher Jurvetson Fund I will also be able to fulfill one of its original intents, which was to invest in later-stage rounds of companies that had already received early stage financing from Draper Fisher Jurvetson’s institutional VC funds.
Citing conflicts of interest, the Securities & Exchange Commission had previously ruled that MeVC Draper Fisher Jurvetson Fund I could not make follow-on investments in Draper Fisher Jurvetson portfolio companies. It could only invest alongside Draper Fisher Jurvetson in new investments. Grillos believes those conflicts of interest to be gone.
Robert Knapp, managing director at Millennium, was unavailable for comment on the evolving structure of MeVC Draper Fisher Jurvetson Fund I.
“[Millennium Partners] appear not to be [in favor of this arrangement],” Grillos says.
Indeed, a statement released through a spokeswoman following the resignations of Freudenthal and Wozniak indicates that Knapp doesn’t plan to call off the dogs anytime soon. It reads in part: “We believe anything short of Grillos resigning would be totally unresponsive to investor sentiment and therefore unacceptable.”
Contact Charles Fellers