Disclosure Concerns Lead To Changes at CRV

Charles River Ventures has raised $250 million for its twelfth fund. The process did not include any institutional investors from the public sector, including past backers like the City of Lowell, Rhode Island State Treasury and Massachusetts Pension Reserve Investment Management Board (MassPRIM).

Bruce Sachs, a general partner with Waltham, Mass.-based CRV, says that the decision to exclude public LPs was difficult but necessary. The firm has valued its longstanding relationships, but is concerned that the current trend toward private market transparency could compel its investors to release sensitive fund information. Public LPs in states like Texas, California and Michigan already have disclosed fund performance data on their general partners, and CRV is particularly concerned that a release of underlying asset information – such as portfolio company valuations – could be next.

The firm hinted at its eventual path in late 2002, when former CRV general partner Ted Dintersmith sat down for a Q&A interview with Venture Capital Journal (a sister publication of PE Week). He said that CRV was a supporter of disclosure when it concerned a possible conflict of interest, but that anything further ?seems a bit like an invasion of privacy.? He also noted that VCs would be afforded greater selectivity when it came to choosing future LPs, due to the trend toward smaller fund sizes: ?You’d hope that the people petitioning for this information would have the intention of benefiting the pension funds, but I think they’ll actually just cause a lot of problems for the funds. You have an environment where fund sizes are shrinking, so top-tier firms are going to have to decide which LPs they keep and which just don’t make sense anymore.?

CRV’s standing as a top-tier firm is debatable, but everyone would agree that the firm was particularly well positioned to slash its LP roster. The $250 million target for CRV XII represented just 21% of the $1.2 billion raised for its eleventh vehicle in 2001, and was still oversubscribed despite the public LP snub.

?We had some LPs who are used to putting $15 to $20 million or more into a fund, but the most we could give anyone was $12.5 million,? Sachs explains. ?Then there were others who we could only offer $2 million to, but that wouldn’t be meaningful to them, whereas we could add that to someone else’s commitment and bring it up to $5 million, which would be meaningful.?

CRV is not the only firm to have excluded public LPs, but is the first known to have done so in direct response to the disclosure debate. The closest comparison may be Sequoia Capital, which allowed both the University of Michigan and University of California into its $395 million Fund XI last spring, only to subsequently send out eviction notices.

Wayne Smith, a senior investment officer in charge of alternative investments for MassPRIM, acknowledged that his organization had been shut out of CRV XII, but declined to comment further on the matter. PE Week was unable to secure comments from any other public LP in past CRV funds, except for the City of Pawtucket, R.I., which had not planned to reinvest with CRV due to internal asset allocation issues.

CRV is not the first fund to exclude public LPs, but it is the first known to have done so during fund-raising due to the disclosure debate. The closest comparison is Sequoia Capital, which allowed both the University of Michigan and CalSTRs into its fifth fund last spring, before trying to subsequently expel the pair for disclosures of past Sequoia fund performances.

Personnel Changes

The new CRV fund includes general partner changes in addition to its many limited partner changes. Firm co-founder Rick Burness has retired, while longtime general partner Ted Dintersmith will continue to invest from his new Charleston, S.C. residence, but is no longer listed as a general partner.

This also will be the first CRV fund to formally include Bill Tai, who joined in 2002 as a general partner in charge of the firm’s West Coast office. In addition, CRV has promoted Austin Westerling from associate to principal, and added George Zachary, formerly of Mohr, Davidow Ventures, as a venture partner in its Silicon Valley office.

CRV only invited a select handful of new investors into its latest fund – all of whom had an existing relationship with Bill Tai. The fund officially closed last Friday.


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