Beset by strife in its partnership over strained interoffice dynamics, VSP Capital has lost one of its five general partners, another GP has said he plans to leave, and one of VSP’s limited partners has sought to sell its stake in the fund, PE Week has learned.
It was only two months ago that the San Francisco venture firm closed on its third fund, a $185 million vehicle targeting early stage consumer and enterprise technology companies.
Since that time, General Partner Tony Conrad has resigned. He had been a GP with the firm since 2000. Conrad left in November and has since launched a stealth, RSS-related startup in San Francisco. Conrad declined comment, saying, “As I’m sure you can understand, I’m just not in the flow of what is or isn’t happening at VSP anymore.”
Additionally, Vince Vannelli, who has been with VSP since 2002 and was promoted from venture partner to general partner in November 2004, resigned in late March, according to sources familiar with the situation. Firm founder and Managing Partner Joanna Rees-Gallanter denied that Vannelli had resigned, and Vannelli told PE Week that he is still working with VSP, but he declined to say whether he tendered his resignation.
VSP’s other GPs are Rees-Gallanter; John Hamm, who was hired in September; and Matt Crisp, who joined the firm as an entrepreneur-in-residence in 1999 and was promoted to partner the following year. Also, VSP brought aboard former Mayfield Venture Partner Dana Settle as a partner this year. Hamm, Crisp and Settle did not respond to interview requests.
Meanwhile, limited partner Duke Management Co., has contacted investors to discuss selling its shares in VSP’s fund III, according to two sources close to the matter. A Duke manager, who asked not to be identified, denied that the LP is trying to sell its VSP stake. “We firmly support our commitment in VSP,” the manager says. Asked if Duke was familiar with any trouble in the dynamics within VSP, the manager responded, “I can’t comment about that.”
The GP departures and rumors of disgruntled LPs appear to stem from friction among personalities at the firm. After reading a PE Week online story last Wednesday that reported that Duke was shopping its fund III position and that Vannelli had resigned, Rees-Gallanter left the following voice mail for a PE Week reporter: “I’m shocked. It’s absolutely inaccurate. Vince has absolutely not submitted his resignation. He’s working hard and is very much here, so I don’t know where that came from, and I just think this whole thing is just garbage.”
In a subsequent phone interview on May 11, Rees-Gallanter said, “We talked to our contact [at Duke] and they said they’re supportive of their investment” in fund III. She also said that she would have Vannelli send PE Week an email stating that he had not resigned and had no plans to.
The following morning, PE Week sent an email to Rees-Gallanter and Vannelli, indicating that the publication’s deadline was approaching and requesting a definitive statement from Vannelli.
Neither Rees-Gallanter nor Vannelli replied before deadline, as of 8 p.m. on May 12. Instead, PE Week received an email from Tom Phillips, a sales and marketing expert affiliated with VSP. It read:
“Our policy at VSP Capital is not to comment on management matters of the firm as it concerns gossip and innuendo. The firm will continue our strategy of investing in early-stage companies helping build sustainable, high growth businesses through active partnership and positioning. We remain committed to our LPs and portfolio companies and uphold the highest level of professional integrity.”
Phillips did not respond to a voice mail seeking further comment.
VSP, previously known as Venture Strategy Partners, has seen a number of people come and go since it was founded in the mid-1990s:
* Jeff Braun joined as a venture partner in 1999 and left in 2000.
* Bob Hambrecht joined as a venture partner in 1999 and left in 2002
* Tony Kamin worked at VSP as a venture partner from 1998 to 2003
* Dan Kranzler was a venture partner from 1999 to 2002.
* And David Likins joined VSP in 1999, was promoted to GP in 2000 and left the following year.
Likins, now president of Kirkwood Mountain Resort and Development Co., couldn’t be reached for comment. Kamin, now president of a private equity company, did not return a phone message. Kranzler, founder and CEO Mforma, a cell phone entertainment company, also did not respond to a phone message.
VSP Capital has made at least three stealth investments from its third fund, including in what Rees-Gallanter characterizes as a next-generation search company. The other two are an instant-messenger “enhancing” startup and a marketing services company.
The University of California, which is a limited partner in VSP’s fund III as well as fund II, has made return information publicly available for fund II, a $195 million vehicle. UC invested $15 million in fund II, of which $11.55 million had been drawn down as of Sept. 30, 2004. As of that date, UC had received a distribution of just $755,000 from VSP and had calculated that its net IRR (internal rate of return) for its investment was negative 24.8 percent. As a vintage 1999 fund, fund II is still relatively young, but its IRR was worse than the average (-14.73%) and the median (-16.75%) for the eight vintage 1999 funds UC has invested in.
UC’s public documents also show that the university system invested $30 million, or 22%, of VSP’s fund III. VSP had not drawn down any of that capital, as of Sept. 30, 2004. UC did not respond to a request for comment.
Two other VSP LPs-Adams Street Partners and Horsley Bridge Partners-also did not respond to PE Week’s inquiries.
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