IP: Venture Capitalists See Investors Grow Mutinous

[Dave Farber <dave () farber net>]

Venture Capitalists See Investors Grow Mutinous

April 14, 2002 

By AMY CORTESE


 

In March, Battery Ventures, a leading venture capital firm,
held an annual meeting in a Florida resort for its limited
partners, which include some of the biggest pension funds
and endowments. 

A moment of levity came when Thomas J. Crotty, a Battery
executive, awarded a trophy to a limited partner who had
won a golf tournament. As he presented the cup, a cheap
$100 job, Mr. Crotty said it showed "just how desperate
V.C.'s are to give anything to a limited partner these
days." 

The remark drew laughs, but it also reflected the
escalating tension between venture capitalists and their
investors. In the two years since the Internet bubble
burst, venture investors have watched their lush profits
shrivel. Yet many venture capitalists are still doing quite
well for themselves because of the large management fees
they collect from investors. Fees are based on their funds'
size, so as funds ballooned over the last few years - about
40 have at least $1 billion in capital - so have the fees.

With typical fees at 2 to 3 percent of a fund, a venture
capital firm with a $1 billion fund would collect $20
million to $30 million annually from investors, even if
only a small amount of the fund has been invested - and
into money-losing companies at that.

The incongruence is at the heart of a brewing investor
rebellion. While limited partners have little legal
recourse, many are demanding more information and pushing
venture capitalists to make changes, like reducing the size
of funds and, therefore, the fees. At least five big firms
have scaled back funds this year.

Snip

http://www.nytimes.com/2002/04/14/business/yourmoney/14VENT.html?ex=10197835
33&ei=1&en=c556b7eb7f0e2270

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