Mayfield Closes Fund XII, Minus Upset LPs

Mayfield, a venture capital stalwart since 1969, last month closed its twelfth fund with $375 million. The Menlo Park, Calif.-based firm secured capital commitments from about 75% of its Fund XI investors, but lost at least seven brand-name limited partners due to a combination of low returns, and disagreements over the handling of a management fee/clawback situation (see PE Week, 8/15/05).

Kevin Fong, a managing director with Mayfield, acknowledged that returns from the firm’s past two funds have been disappointing, and that returning to the fund-raising circuit was difficult. He would not discuss specifics of the fee/clawback issue, however, except to say that he was “saddened” that certain limited partners had aired their grievances to PE Week.

“We pride ourselves on having very good LP communications, and encourage LPs to tell us both the good and the bad on a one-to-one basis,” Fong says. “We were very forthcoming to our LPs, and we believe we responded appropriately, and only acted on amendments that were viewed and signed by our LPs.”

However, the firm was aware of dissention in the LP ranks prior to the PE Week story, particularly since the article appeared only after some of the LPs had opted to pass on participating in fund XII. Moreover, not all LPs voted in favor of the amendments, while others signed only after basically realizing that their only other option was to sue.

“We viewed those communications as one-to-one, and are disappointed by the fact that some LPs have chosen to use an alternate public channel to vent their frustrations,” Fong says. “Clearly, we haven’t done our job in encouraging them to get to us directly.”

“Kevin is saddened’ that someone actually had the audacity to take it out of house,” asked an incredulous LP. “I guess then I am saddened that Mayfield took my money.”

Mayfield remains a fiduciary to all of its past investors, and has no plans to change that relationship.

As for fund XII, Fong says that Mayfield will continue its focus on consumer Internet, communications/mobility and enterprise software spaces. Average investments will range from $7 million to $9 million, with its first disbursements expected to come later this year. There still is some dry powder left in Fund XI – some of which went last week to a $19.5 million Series B round for Jobster Inc.

The fund was sold with a 2.5% annual management fee and a 30% carried interest structure, which is not inclusive of fees. Limited partners included HarbourVest Partners and J.P. Morgan Chase, according to a regulatory filing.

In related news, Mayfield promoted venture partner Raj Kapoor to the position of managing director, and added a managing director title to CFO James Beck.