LPs To Pay $1M Salary to Two VSP GPs

San Francisco-based venture firm VSP Capital has resolved lingering questions over the management of its second fund, according to a limited partner involved in the negotiations.

The agreement between VSP Capital and its LP advisory board stipulates that remaining VSP partners Joanna Rees-Gallanter and John Hamm will continue to manage the Venture Strategy Partners II fund in exchange for a combined annual salary of $1 million, according to the limited partner.

Rees-Gallanter did not respond to an email seeking comment.

The matter of fund II management had been in flux for several months, following a series of general partner resignations and the subsequent disbanding of VSP Capital’s third fund. The $195 million fund was raised in 1999, and still has about 20 active portfolio companies, including Danger Inc. Danger, a Palo Alto, Calif.-based maker of wireless messaging devices, has raised more than $113 million from VSP, Mobius Venture Capital, Redpoint Venture and several other investors, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.

Other VSP II investments, according to the MoneyTree, are AccountNow Inc., an online banking service based in San Ramon, Calif.; and E4X Inc., a foreign exchange hedging service based in New York.

Hamm also will continue to manage an investment in former VSP Capital III portfolio company Truveo – a Burlingame, Calif.-based startup focusing on targeted data mining – which he bought via a recent liquidation auction.

It should be noted that none of the departed partners – Tony Conrad, Matt Crisp nor Vince Vannelli – tried to wrest control of the second fund’s portfolio. The $1 million management fee represents a discount for limited partners. The limited partner source expressed some dissatisfaction with the arrangement, but added that it was a necessary solution given how weary the LP advisory board had grown from disbanding VSP.

Indeed, VSP Capital closed its third fund with $185 million in early 2005, with a strong roster of LPs that included Adams Street Partners, Duke University Management Co., Horsley-Bridge Partners, Parish Capital Advisors, TD Capital and the University of California Regents.

Shortly after a relatively quick close for its third fund, VSP just as quickly saw its LPs pull the plug on the fund two months later. Sources close to the firm blame friction between firm founder Rees-Gallanter and three of VSP’s five general partners. That friction, they say, resulted in the termination of one GP and two others tendering their resignations.

When Crisp resigned in May, his departure triggered a key-man provision and VSP’s LP advisory board unanimously approved a resolution calling for all LPs to vote in favor of disbanding the fund.

So it was that in a span of just two months that a firm went from five investment pros, a new $185 million fund and a rosy outlook to a firm with two investors managing what’s left of an old fund.

In other VSP news, former vice president of marketing Jennifer James has joined Alta Partners as director of marketing and communications.