Invesco Tries to Retain Talent

Invesco has offered raises, cash bonuses and stock to all the investment professionals in its Invesco Private Capital division to stem a bleed that threatens to put the firm’s venture investment practice out of commission, PE Week has learned.

The move comes after four of the division’s six senior investors quit their jobs during the last three months. Among the departees is star VC and Managing Partner Parag Saxena, who recently ranked No. 23 on the Forbes magazine list of the nation’s top deal makers.

Executives from the asset fund money manager would not comment on the specifics of the retention bonuses, but people familiar with them put the package value for some of the remaining investors at more than $100,000. In all, sources say about a dozen remaining executives are in line to receive a windfall.

“Invesco wants to stabilize the business and retain the team,” one of the firm’s investors says. “And it’s ponying up.”

Retention bonuses are a typical tool to keep people from leaving, but they’re not often used in investment partnerships. Still, some VCs like the idea.

“That could be quite an inducement,” says Gary Little, a general partner at Morgenthaler Ventures. “But I’ve never heard it applied to a venture firm.”

Other VCs are less certain that a bonus is an effective strategy. “Those things are OK as a Band-Aid,” says early stage investor M.R. Rangaswami, co-founder of the Sand Hill Group. “But they never really work.”

Part of the problem may be that the incentives don’t directly address why Saxena and the others left. Upon leaving, the Invesco investors told The New York Times that increased scrutiny from their parent company (having to do with their settlement in a lawsuit filed by the New York Attorney General over improper mutual fund trading) was the main reason for their resignations.

Tensions between VC investors and a corporate parent are not unusual. In fact, several new firms have spun out of corporate parent companies recently. The most notable is Panorama Capital, which split from JP Morgan Partners last year and has recently set up shop in Menlo Park, Calif.

The destinations of Saxena and the other former Invesco executives are not yet known. However, sources speculate that they may launch their own firm – one that won’t have to share its carry with a corporate parent.

Invesco’s bonus offer to the remaining execs could be more than an effort to retain what talent it still has. The firm is currently investing from Invesco Venture Partnership Fund IV, a $500 million vintage 2004 fund that is believed to be winding down. Sources say the firm is on track to raise another fund within the next year and that the retention bonuses are being used as a way to get the ship stabilized before the firm sets sail on the next fund-raising circuit.

Harvard Business School Professor Josh Lerner points out that the firm may encounter legal problems with its current fund. Losing key investment team members can often set off key-man provisions of a firm’s contract with its limited partners. If too many people leave, LPs can demand their investments back, he says.

“When you’ve had a few high-profile defectors, it becomes increasingly important to keep the people you have,” Lerner says.

Among Invesco’s LPs is the Ohio Bureau of Workers’ Compensation, which invested in the firm’s $300 million third fund in 2000. The pension fund released returns data from Invesco’s third fund last fall and the LP put its loss on fund III at more than 16 percent.

Other Invesco LPs include American General Corp., Brookline Retirement System, Castle Private Equity, Los Angeles County Employees’ Retirement Association, Princess Management & Insurance Ltd. and Target Corp.

Among Invesco’s investments have been SigmaTel (Nasdaq: SGTL), a semiconductor company that went public in 2003 in a $150 million offering; DexCom (Nasdaq: DXCM), a medical device company that launched a $56 million IPO in 2005; and ArborText, a maker of publishing software, which raised $55 million from Invesco and others and sold to PTC (Nasdaq: PMTC) for $190 million in cash in 2005.