Let's Be Obsessed Together...

While in San Francisco last week, I had dinner and drinks with a former colleague. After getting through all the chitchat, she got a puzzled look on her face and asked, “Why are you so obsessed with VSP Capital?” I don’t remember my exact response (which likely was defensive and blame-shifting), but it probably was something like: “Because it’s a saga that never seems to end, which is great for someone whose primary job responsibility is to fill space.” Then I ordered a cup of coffee, because summertime in the Bay Area is an icy insult to the season.

I bring this up because there is, once again, news from VSP. The full story will run in Monday’s print edition of PE Week, but here are the basics:

For the uninitiated, VSP Capital (f.k.a. Venture Strategy Partners) is the San Francisco-based venture capital firm that raised $185 million for its third fund early this year, and then was forced to disband it several months later after a “key man” provision was triggered by the resignation of general partner Matt Crisp. An interesting side note I learned this week is that Crisp’s resignation was preceded by VSP’s attempt to add venture partner Vince Vannelli to the key-man clause (which only required three keys to keep the fund active), so as to blunt the impact of Crisp’s likely departure. No vote was ever held, however, since Crisp took off before one was possible.

Anyway, there have been two lingering questions about VSP. The first is about the future of Fund II, but I have no useful information about that. The second is about the future of the three startup portfolio companies within the still-born Fund III, and there is information aplenty.

The three companies – Evil Twin Studios, Truveo Inc. and Umbria Inc. – were quietly put up for auction by VSP sometime last month, after LPs vetoed a proposal to roll them into Fund II. Vince Vannelli – the aforementioned former venture partner – expressed serious interest in bidding at a slight premium on both Evil Twin and Truveo, since he had led both deals. In an email, however, firm founder Joanna Rees-Gallanter suggested to Vannelli that he allow her to bid on the companies at around cost, and then sell him a minority stake afterwards. To me, this seems like a self-dealing insider transaction that ultimately would have lowered LP returns, although John Hamm, a general partner with VSP, calls such an interpretation “garbage.” He says that he is aware of the emails, but that they were nothing more than informal discussions, and that the final bidding process was fair and returned good money to investors (notes: Vannelli forwarded Rees-Gallanter’s email to his attorney, and it also got into the hands of several VSP limited partners; Vannelli declined comment for the PE Week story; Hamm was quite affable during our conversation).

Anyway, Vannelli passed on the offer, and began a bidding war for the assets with John Hamm (who resigned from GP status with Fund III, in order to facilitate his bids). The bidding increments, however, were, in Hamm’s words, “dollar-by-dollar in a multi-million-dollar auction.” Rees-Gallanter and the LP advisory board decided to put an end to the informal comedy, by devising a “blind” bid procedure for Vannelli and Hamm, whereby they each would submit final bids for each company via simultaneous email. Highest bid would win the company, with a starting point of the highest bid received during the previous process. In the end, Vannelli would up with Evil Twin, and Hamm got Truveo. Both were sold at premiums, and LPs got paid. The third company, Umbia, is still being auctioned off.

That's all I've got (thanks to Constance Loizos for help researching the VSP story). Have a good weekend...

Want to reach over 24,700 PE Week Wire subscribers? Learn How

Allan Barkat will leave Apax Partners early next year, according to Israel’s Business Arena. He has been with the firm for ten years, and is head of its Israeli office. No word yet on a successor. www.apax.com
-----------------
Correction: Advanced Analogic Technologies Inc. raised $106 million via its IPO, not $160 million.