Tom McConnell has been a general partner with New Enterprise Associates for the past 18 years. But when NEA sent out prospectuses for its eleventh fund earlier this year, McConnell’s name wasn’t on the partnership list. Ditto for Ron Case and Rob Coneybeer, NEA general partners who have been with the firm since 1991 and 1996, respectively.
Likewise, Charles River Ventures (CRV) and Sevin Rosen Funds are out raising money for new funds that will not include two longtime partners. In previous years such defections would give a prospective LP more than just a moment’s pause. Today, however, changing partnerships and succession plans are as much a part of the landscape as are downsized funds.
“A lot of people are starting to drip out of successful funds, and I think it may become a giant flush at the end of the year,” says a state pension fund manager who hasn’t yet looked at the NEA book. “You need to monitor each one, but it’s not exactly the cause for alarm it used to be.”
Take the case of CRV of Waltham, Mass. It’s looking to raise $250 million for its twelfth venture fund. The firm is in the process of saying goodbye to GP and unofficial spokesman Ted Dintersmith, who recently moved to Charleston, S.C., and will not be part of the CRV XII roster. Both existing and prospective CRV investors say that the Dintersmith move was expected and that it shouldn’t prevent the firm from hitting its target.
“The only problem CRV will have is that they’ve kept their 30 percent carry,” says one LP who says he’s likely to pass on the fund.
The 30% carry hasn’t been an issue with other LPs, especially since fees will be modest on the smaller Fund XII, motivating GPs to make their money from the carry by producing big returns, says a source close to CRV. Also, the firm’s LPs haven’t forgotten that the GPs walked away from more than $150 million in fees last year when they reduced CRV XI from $1.2 billion to $450 million.
Overall, fund-raising is going exceedingly well for the firm. It will likely nail down allocations by November and close on the new fund in December or January. Fund XII is considerably oversubscribed, since CRV has about 100 LPs in its previous funds, the source says. The firm mailed its private placement memorandum about two weeks ago, but it was already receiving commitment letters from LPs up to a month before that, the source says.
The tricky part with the new fund will be balancing LP’s demands for a larger share of Fund XII with the reality of a much smaller fund. There was talk that the firm might raise $350 million, but the source says it has put a hard cap on $250 million. Some LPs, like pension funds, committed $50 million apiece to Fund XI. Although some have put in requests for equally large chunks of Fund XII, it just isn’t feasible to accommodate them with a much smaller vehicle. At the most, a single LP probably won’t be able to put in more than $5 million, the source says.
Down south, Sevin Rosen Funds of Dallas is looking to raise between $300 million and $350 million for its ninth fund. The new offering will not include Charles Phipps, who joined Sevin Rosen in 1987 following a 30-year career with Texas Instruments. Nick Sturiale has been promoted to take Phipps’ spot, while the firm also promoted associate Ram Velidi to a regular partnership position.
“Even though we’re raising less money than before, we still need the same number of partners because less money is invested in each deal than it was when we raised Fund VIII,” a Sevin Rosen spokeswoman explains. “Charles still will work on his Fund VIII companies, but won’t be investing from Fund IX.”
Email Dan Primack
Additional reporting by Lawrence Aragon.