VSP Founder Confirms Fund III Demise

VSP Capital has asked its limited partners to cease financial backing for the firm’s $185 million fund III, firm founder Joanna Rees-Gallanter told PE Week last week. It was her first formal comment following PE Week’s report that VSP’s LP advisory board effectively agreed to discontinue fund III.

“In light of the triggering of the key man provision, the senior management of VSP Capital has recommended to the firm’s limited partner advisory board to discontinue further investments in VSP III and concentrate resources on the firm’s existing portfolio companies,” Rees-Gallanter wrote in an email to PE Week. “As fiduciaries, we feel this is the most responsible and conservative course of action with the best interests of our LPs and portfolio companies in mind. The firm will also take all necessary and appropriate actions to assure that all former partners have adhered to their fiduciary responsibilities, as well.”

VSP’s LP advisory board voted unanimously two weeks ago to recommend to all of the San Francisco-based venture capital firm’s 14 investors that they discontinue its third fund. Since the six LPs on the advisory board collectively committed slightly more than three-quarters of the fund, they didn’t need permission from any other limited partners to pull the plug on the fund. The fund held a final close in March.

Rees-Gallanter did not respond to specific questions about the future of the three stealth investments that VSP made through fund III. A source close to the firm says the three startups are Evil Twin Studios, a San Francisco-based character animation startup; Truveo, a Burlingame, Calif.-based startup focusing on targeted data mining; and Umbria Communications, a Boulder, Colo.-based startup that provides market research by collecting and analyzing postings from millions of blogs. Officials for Evil Twin and Truveo could not be reached for comment and Umbria’s CEO had no comment.

PE Week also inquired about the status of the firm’s marketing representative, Jennifer James, who was recently removed from VSP’s website. Two sources told PE Week that James was asked to leave VSP in January – shortly before her maternity leave was to begin. “Regarding Jennifer James, she is an exceptional marketing professional and continues on payroll providing consulting expertise to the firm,” Rees-Gallanter said in her email. James did not respond to requests for comment.

Also, according to two sources, Dana Settle officially resigned as partner from the firm this week, and is currently working with VSP portfolio company Evil Twin. Settle did not respond to messages seeking comment.