Draper Fisher Jurvetson (DFJ) may be parting ways with one of its affiliates. The venture team that has raised funds under the name Draper Atlantic has filed for a third fund under the moniker New Atlantic Fund III, according to a Securities and Exchange Commission filing dated Aug. 2.
And Jim Lynch, the managing partner who was closely affiliated with DFJ, is not listed on the filing. Lynch had worked with the DFJ affiliate Polaris Fund prior to co-founding Draper Atlantic in 1999.
DFJ has been one of Draper Atlantic’s top co-investors, along with being an LP and advisor to the firm.
John Backus, who co-founded Reston, Va.-based Draper Atlantic with Lynch, declined to comment on fund III, citing SEC regulations. In an email to PE Week, Backus wrote: “We can’t talk about anything we ‘might do’ with respect to a future fund (notably to anyone in the press) as it could be construed as promoting the fund in a public arena … But to be clear, we operate two core funds right now, Draper Atlantic Venture Fund and Fund II. Both of these funds are DFJ affiliate funds, always have been and always will be.”
Requests to DFJ for comment were unreturned. Lynch, on vacation in Maine, did not respond to an email request for comment.
The Draper Atlantic website offers no indication of any changes. Lynch is still listed as managing partner and the site (at draperatlantic.com) as of late last week continues to link to DFJ and other DFJ affiliates. In addition to Backus and Lynch, the investment team also includes Managing Partners Thanasis Delistathis and Jose Ferriera, who was recently promoted from partner. One source close to Backus suggests that it may be easier for the team, which is looking to raise $200 million for fund III, to go to market without the Draper name, since it may be time for the affiliate to prove itself independently.
The firm, which focuses on early stage IT deals, has raised about $150 million combined iin its first two funds. One closed in 1999 and the second in 2000. The firm has backed 45 companies, 16 of which were Internet startups, according to Thomson Financial (publisher of PE Week). Most of the portfolio companies are in the firm’s backyard, with 33 of them based in Virginia.
Much like many funds of similar vintage years, funds I and II appear to have had mostly misses. Defunct companies in the firm’s portfolio include DigitalOwl, Ikimbo Inc. and Spaceworks, among others. One successful exit appears to have come from Morrisville, N.C.-based AuctionRover.com, a provider of online auction services that raised $6 million in 1999 and sold to GoTo.com in 2000 for 3.47 million GoTo.com shares. The combined company was renamed Overture Services. How big a hit the investment proved for Draper Atlantic depends largely on when it sold those shares. In 2003, Overture sold to Yahoo for $1.7 billion.
Draper Atlantic may yet realize a better outcome with Divx, a San Diego-based startup that makes video compression-decompression software, commonly called codec. The company is profitable and is in registration to raise $135 million in an IPO. Draper Atlantic, through both of its funds, invested in six of Divx’s seven rounds of funding, which total $47 million. Its most recent round, closed in October, came exclusively from Insight Venture Partners in New York, which backed the company with $17 million.
If Backus and his other team members are heading out on their own, it will not be the first time that DFJ has separated from one of its offshoots. In January, Asad Jamal, the VC who backed Baidu and Skype, announced that he would be splitting his Asia-based division from DFJ’s affiliate program and raising an independent fund. At the time, both Jamal and DFJ Managing Director Tim Draper said that the move owed to the global mandate of DFJ’s eighth fund, which closed at $400 million late last year. Said Draper at the time, “It didn’t make sense [any longer]. Once we, DFJ, were able to invest internationally, it didn’t make sense to have two groups going after the same thing.”