Late on the night of Friday, April 5, the board of MeVC Draper Fisher Jurvetson Fund I Inc. abruptly canceled a special April 25 shareholders’ meeting. At issue were two controversial proposals that had failed to generate adequate support at the regular March 27 meeting.
The announcement pleased Millennium Partners’ Robert Knapp. He had spearheaded a bitter proxy fight to block passage of the proposals to renew MeVC’s investment advisory agreements, arguing the new agreements cut out shareholder review of future advisory agreements. (Previous stories about the proposals appeared in the March 25 and April 1 issues of PEW.)
“We just didn’t have enough time to get to all of our shareholders,” says John Grillos, MeVC’s chairman. “We decided that we’re going to spend more time and do the process in a manner that’s more consistent with really finding out what our investors want to do.”
The board’s decision extends the previous advisory agreement through late August, by which time the shareholders have to pass a new advisory agreement. In the meantime, Grillos says MeVC’s board will send shareholders letters, host conference calls and maybe even go on a road show to plead their case.
“We’re going to reconfirm what we did when we did the original prospectus and explain what’s going on with this hedge fund, so they [shareholders] can understand what’s really prompting all this press and all this court stuff and all this other malarkey that Millennium’s doing,” Grillos says, suggesting Millennium is just looking for a stock pop.
Knapp, a managing director of Millennium, had backed his opposition of the proposals with an effective press relations effort and a lawsuit. Beyond his opposition of the actual proposals, Knapp also faulted MeVC’s management and performance, but says MeVC still hasn’t contacted him to discuss his grievances.
“We’ll have a meeting with Millennium,” Grillos says. “I’ve already talked to two of these arbs’, so now I know what the game is. Millennium is the attack dog.”
Knapp says he’s interested in shareholder value. “MeVC Advisers has been focusing on venture capital and are forgetting that they are running a publicly traded company,” he says.
Knapp says that other shareholders in the fund have suggested that MeVC Advisers, the entity that actually runs the fund’s capital, engage in activities such as a share-buyback. He’s interested in three variables: returning the cash on the balance sheet, changing its investment adviser and decreasing the fee arrangement.
Under one acceptable scenario, Knapp wants to see the uninvested cash returned and the investments placed in a liquidating trust.
But, Grillos says a venture fund can’t compete for good deals without significant cash reserves and won’t survive pay-to-play follow-on rounds where tapped-out VCs become shark bait for other investors in a deal. He also says the current environment is prime time for MeVC to invest.
Knapp says he would be interested in continuing as an investor in the fund if there was a change in the investment advisor, even saying he would be interested in a board seat. “I think we would have a great deal to contribute as a director of the fund,” he says. “I think the fund needs more independent directors with more distance from management.”
Grillos bristles, “Why would I want to do that? They don’t know anything about venture capital. The only reason they want to get on the board is to raid the fund. How is that in shareholders’ best interests?”
“It’s an arb.’ attack,” he says. “They look at the difference between the net asset value and the stock price and they say, Gee, we think we can get something in between the cash and the NAV by raiding the fund.'”
Grillos would not predict when in the next five months MeVC would call its next shareholder meeting, and he wouldn’t say how those advisory proposals might compare to the two that did not pass on March 27.
“We’re on a steep learning curve about how these arbitrageurs work,” he says. “And that learning curve could create the need for making some structural changes to the proxies that would be designed to allow this kind of fund to fit more naturally into the world of predators out there in the public markets.”
Through a subsidiary, Millennium also filed a lawsuit in February in federal court in Delaware against the fund’s investment advisors to return allegedly excessive fees to the fund. Lawyers for the defendant have moved to transfer the case to San Francisco, and judges were scheduled to issue a response on Friday, after PEW went to press.
Contact Charles Fellers at: Charles.Fellers@tfn.com