PE Week Wire -- Tuesday, July 18
Growing Pains: Changes at ACS
I was the first of my friends to get married, which prompted lots of questions about how I was handling my “new” life. “It’s just the same as it was before,” I said, “except I now have more plates.” After all, I had been living with my girlfriend/wife for several years (yes, slap me for sinfulness), and we each had become accustomed to the other’s quirks, annoying habits, and so on. Had we simply dated before getting married, my answer to my friends’ question probably would have been far more complex and, possibly, negative. Yes, I know there are studies suggesting just the opposite, but I’m trying to make a (long-winded and tedious) point: Long engagements don’t always produce a solid marriage.
Such is the case with Andy Fillat and American Capital Strategies. Fillat is the former VC chief of Advent International, who was hired by ACS earlier this year to launch and run a new venture capital program focused on the IT market. The move came after nearly three months of negotiations -- I held the story until papers were signed, although did offer a blind item – and resulted in what seemed like a well-planned and amicable partnership. Fillat already had experience as a venture capitalist within a buyout-focused firm, and genuinely dug the idea of an evergreen capital pool that didn’t have strict deal size/stage or industry cycle limitations. He also hired Tony Abate, a former Battery Ventures and Ironside Ventures pro with whom he earlier had been contemplating a private partnership.
But the long engagement was for naught. Boston-based Fillat was quietly sacked by ACS last month, after a series of contentious disagreements over investment philosophy and other “business culture” issues. Neither side is publicly commenting on the move, but multiple sources say that the fit was a bad one from day one. “You had two sides that knew how they wanted things done, and they just kept butting heads,” says someone familiar with the situation. “Everyone knew that ACS held the cards and that it wasn’t working out, although the firing was sudden and, I think, surprised everyone.”
Tony Abate almost immediately followed Fillat out the door, due to a combination of loyalty and the fact that he was one of “Andy’s guys.” Neither has yet signed on elsewhere.
It’s a bit hard to understand how this all happened, considering how long Fillat had been in discussions with ACS. Maybe it really is true that certain problems don’t appear until you’ve actually gotten married, or perhaps both sides mistakenly thought they could just agree to disagree on certain issues.
Before the final showdown, however, Fillat managed to recruit two managing directors to launch a new office in Palo Alto: Virginia Turezyn (formerly with Constellation Ventures) and Greg Smitherman (formerly with Advent International). This pair will continue running the show going forward, with help from new vice president David Hartwig (formerly with Battery Ventures) and remaining Boston principal Miles Arone. Turezyn says that the group has plans to continue staffing up on the West Coast, but that the Boston effort is at least temporarily on hold. She also says that deal-flow is strong, with one term sheet out and other transaction expected to close within a week.
Unlike in so many of these cases, there are no evil culprits here. Most folks pin a bit more of the blame on Fillat’s irascibility, but the realty is that the two sides realized it wasn’t working before the endeavor became entrenched. What ACS will have to do, however, is be more forthcoming with entrepreneurs than it was with me. It’s ok for ACS president and CEO Malon Wilkus to tell a reporter that the firm doesn’t comment on staffing matters. Not so with entrepreneurs.
Prospective portfolio companis have every right and need to know why two managing directors left just five months after joining. They often make VC decisions based more on individual investors (i.e. board members/advisors) than on term sheets or brand, and the smart ones already have instinctive concerns about taking cash from hierarchical corporate/financial venture arms. ACS is not AIG, but it still will need to reemphasize the point.
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July 18, 2006
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