LPs Meet About Troubled VSP Capital

Trouble continues at VSP Capital, which has now lost three of its five general partners and whose LP advisory board is meeting to discuss the firm’s fate, PE Week has learned.

PE Week reported last week that two VSP had lost two of its GPs. Now a third, Matt Crisp, is gone, too. His bio was removed from VSP’s website this week, as was that of Vince Vannelli, who sources say resigned in late March.

Crisp, who is a “key man” at the San Francisco firm, resigned on May 12. He confirmed his resignation today. Asked about information from one source, who told PE Week that Crisp was locked out of VSP’s offices after he quit, Crisp had no comment.

VSP’s remaining GPs are Rees-Gallanter and John Hamm, who was hired last September. Also remaining is former Mayfield Venture Partner Dana Settle, who joined VSP as a partner this year.

Hamm and Settle did not respond to interview requests.

It was only two months ago that the 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.

Additionally, Vannelli, who has been with VSP since 2002 and was promoted from venture partner to general partner last November, resigned in late March, according to sources familiar with the situation. Rees-Gallanter last week denied that Vannelli had resigned, but his departure has since been confirmed by several sources.

Meanwhile, Duke Management Co., has contacted investors to discuss selling its shares in VSP, 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 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, Rees-Gallanter said, “We talked to our contact [at Duke] and they said they’re supportive of their investment” in Fund III, and she reiterated that Vannelli was still active with VSP.

A source close to VSP says that the San Francisco firm’s LP advisory board is meeting this week to talk about the future of VSP’s newest fund, a $185 million vehicle that held a final close in March.

Rees-Gallanter further said that she would produce-upon PE Week’s request-an email from Vannelli that stated that he had not resigned and had no plans to do so. When no email appeared at PE Week’s office within the following 24 hours, both Rees-Gallanter were asked again for a definitive statement from Vannelli by our press time, roughly eight hours later. Neither replied. Instead, PE Week received an email from Tom Phillips, a sales and marketing expert who is affiliated with VSP.

VSP founder and Managing Partner Joanna Rees-Gallanter has not responded to interview requests since talking to PE Week last Wednesday.

Calls and emails to several of VSP’s limited partners, including Marie Berggren, managing director of The Regents of the University of California, and James Mason of Parish Capital Advisors, went unreturned. Automated email replies from both Berggren and Mason state that they are “away” from their respective offices from May 10 through May 20.

Phillips’ email reads: “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 of cell phone entertainment company Mforma, 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. 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.

Email Constance.Loizos@thomson.com