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Longtime venture capital firm Sevin Rosen Funds moved closer to reorganization since abandoning fundraising for a 10th fund 15 months ago, as Dallas partners declared plans to raise a new fund under the Sevin Rosen name--without the participation of four California partners. The quarter-century old firm raised the hackles of many venture capitalists in October 2006, when it sent a letter to limited partners who had committed funds to a planned $300 million fund, announcing it would abandon the effort based on "fundamental structural challenges," in the industry, and declaring that: "The traditional venture model seems to us to be broken." At the time, Dallas-based partner John Jaggers said plans to return commitments did not mean the demise of the firm, but that it would reevaluate plans, and the firm has actively continued to invest from its prior fund over the last year. But a recent report in Private Equity Insider said that California partners Steve Dow, Nick Sturiale, John Oxaal and Steve Domenik would not participate in any new fund, and that Sturiale is joining Carlyle Group's venture arm. Though he would not comment specifically on plans, Jaggers indicated that the Dallas group would raise a new fund under the Sevin Rosen name. Jaggers said the new fund will have some change of focus from earlier funds, but he said he thinks the firm has sometimes been unfairly characterized as too hardware- and telecommunications-centric. He said the new fund will likely go forward in the first half of 2008 at around $300 million, and that it will be broadly technology-based with an emphasis on early-stage investments. Dow said the decision to formally split came when Jaggers and others committed to forming the new fund, but that all of the general partners in the previous fund would continue their roles. "We have gone through this before when Ben Rosen and L.J. Sevin decided not to go forward with a third fund back in 1987," Dow said. "When you form a new fund you are making a 10-year commitment to limited partners, and some of us decided not to do that, but from a look-back basis nothing changes, and we will maintain all our board seats and continue to make decisions on follow-on investments as we always have." Blaming the poor initial public offering market for underperformance of its recent funds, the firm closed down new fundraising after a number of previous limited partners declined to reinvest or reduced the size of their commitments. Clint Harris, a managing partner with Wellesley, Mass., investment adviser Grove Street Advisors LLC, which has invested in previous Sevin Rosen funds on behalf of institutional clients, said that at the time of the Fund 10 cancellation he expected the firm to form a new fund at some point under a new structure. "There are some very good people in that organization, and I would be shocked if they didn't come back to market in some form," Harris said. Sevin Rosen had early success with Compaq Computer Corp., in which it was the first venture backer; Electronic Arts Inc.; Lotus Development Corp.; and Cypress Semiconductor Corp. But the firm was slow in backing Internet startups and reeled from the telecom bust in early 2002. Sevin Rosen's roots in the semiconductor and telecommunications sectors may have contributed to the firm's reluctance to fully sign on to the promise of the Internet. Its decision to throw in the towel on a new fund in a venture environment driven largely by consumer-driven new media technology was underscored within days of its announcement when Sunnyvale, Calif.-based Google Inc. announced its $1.6 billion acquisition of YouTube. At the time of the cancellation of the earlier fundraising effort, other venture capitalists, investment advisers and limited partners expressed irritation at the firm's smear of the asset class as a whole. Emily Mendell, the National Venture Capital Association's vice president of strategic affairs and public outreach, noted that most longtime firms were continuing to raise new funds. "Some people, like Sevin Rosen, believe that there is indeed too much money going into the asset class and too much competition for deals but there are others who feel like this is still a very good business and that there are plenty of opportunities," she said at the time. Many longtime venture capital firms have confronted issues of succession as founding partners have dropped out as general partners in new funds, but most have survived in some form or another, whether with the same brand or under new monikers.  Deal Video
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