VSP Capital On Last Legs

VSP Capital’s limited partner advisory board effectively agreed Tuesday to discontinue the firm’s third fund, PE Week has learned.

The six limited partners voted unanimously to recommend to all of VSP’s limited partners that the firm’s third fund be discontinued, according to two sources. But since the six LPs collectively committed slightly more than three-quarters of the $185 million fund, they don’t actually need permission from any other limited partners to pull the plug.

If the matter proceeds like another recent VC fund dissolution efforts, VSP’s limited partners soon will mail a ballot to formalize their decision. That process could take a few weeks.

VSP founder and Managing Partner Joanna Rees-Gallanter did not respond to interview requests via voice mail and email.

The limited partners on the advisory board are Adams Street Partners, Duke Management Co., Horsley Bridge Partners, Parish Capital, TD Capital and the University of California. (Documents made public by UC show that it, for example, committed $30 million.

;Most agreements do allow the LPs to shut down the firm if they decide that it’s in the best interest to do so,” says Carl Metzger, a lawyer in the litigation group of Goodwin Proctor. “They don’t typically need a reason, in other words. What they do need, typically, is a two-thirds vote, or a super majority [of LPs wanting to shut down the fund] of 70 to 80 percent.

Metzger is not involved in the VSP case and was speaking generally about dissolutions. He said that in similar cases that he has seen, investors stop the possibility of any future capital calls and that a wind-down period is usually negotiated with a fund’s managers, who continue to oversee investments that they have made, but who see reduced terms in compensation to do so.

VSP appears to be falling victim to soured relationships in its general partnership. Three of its five general partners have resigned in the past six months. The most recent resignation came from General Partner Matthew Crisp, who quit two weeks ago. Crisp’s resignation, in conjunction with an earlier resignation of Tony Conrad, triggered a “key man” clause in the limited partnership agreement that allowed the LPs to vote on whether the fund should continue.

VSP’s two remaining GPs are Rees-Gallanter and John Hamm, who joined the firm last September. Hamm did not respond to an interview request via email.

Email Constance.Loizos@thomson.com

Additional reporting by Lawrence Aragon.