MENLO PARK, Calif. – The owners of electronic organizers all across Silicon Valley will have to make several adjustments to their address books as Brentwood Venture Capital and Institutional Venture Partners (IVP) divide their enterprises and regroup into separate health-care and information technology firms. Two health-care specialists from Crosspoint Venture Partners also will take part in this remarkable realignment.
In the latest and arguably most dramatic example of the venture industry’s lustful pursuit of specialization, the venerable decades-old IVP and Brentwood announced in early September that their days as diversified outfits were numbered.
Although the complete restructuring of the two Sand Hill Road firms was surprising, the move is part of an overall evolution of the industry that has practically rendered the generalist venture capitalist a quaint memory as traditionally diversified funds reduce or eliminate health care except for Internet-related health companies.
To Brentwood General Partner Ross Jaffe, who will join the new health care fund, currently code named “Project Pinnacle,” IT and health-care investing no longer fall under the same asset class, as their investment paces, timeframes for developing portfolio companies and capital requirements have moved so far apart.
IVP’s Geoff Yang, who will join the new IT firm, code-named “T-Rex,” did not know whether diversified funds were meeting their demise, but he said a key motivation for the IVP/Brentwood realignment was to ensure all partners in the new firms could contribute to every deal that comes through the pipeline.
IVP founder Reid Dennis said, “I think that we recognize that most of the firms in the industry that have had outstanding performances have had that performance as a result of one or two really competent people in their organization.” While the IT-focused Yang was not IVP’s only successful investor, he certainly has been “the one with the hottest hand,” Dennis said, meaning every entrepreneur wanted Yang’s attention. “I think that there was a strong feeling that [Yang] was getting swamped, and he wanted more help from people who were like-thinkers and who also had great presence in the industry and a great track record.”
Brentwood’s John Walecka, Jeff Brody and Brad Jones will move into what has been IVP’s office, joining IVP’s Yang, Tim Haley and Tom Dyal. All will focus on IT investments. IVP founder Reid Dennis and Brentwood founder Kip Hagopian will be “advisory partners,” IVP’s Sam Colella will be a “special partner,” and IVP’s Allen Beasley will be a principal. At press-time, that group had yet to secure a permanent name and was operating under the name T-Rex. The group already has begun marketing an early-stage fund aiming for some $500 million to $550 million, Yang said, and fund raising is expected to be completed by mid-October.
Meanwhile, IVP’s Beckie Robertson and Colella will move across the 3000 Sand Hill Road courtyard to Brentwood’s offices to join its health-care trio of Jaffe, Brian Atwood and Bill Link. Also coming on board are Crosspoint’s Don Milder and Barbara Lubash, thus leaving Crosspoint Venture Partners with no health-care specialists. The pair, however, will continue to work with their current Crosspoint portfolio companies.
Crosspoint Mananging General Partner John Mumford said the early-stage health-care and information technology firm has been leaning more heavily toward IT and several months ago decided to focus exclusively on that sector.
Meanwhile Project Pinnacle expects to raise a $200 million-targeted fund, which would likely have a first and final close in mid-November, Robertson said.
Those who will not sign on with either group include IVP’s Mary Jane Elmore, Norm Fogelsong, Ruthann Quindlen, Jim Strand, Bill Tai and Pete Thomas. Strand and Thomas have announced intentions to retire, although they will keep their commitments to current portfolio companies. Fogelsong will continue to concentrate on his current IVP portfolio companies, while Elmore will do the same and become an individual private-equity investor, according to IVP.
Quindlen said she and as many as four new partners likely will create a very early-stage, digital media-focused boutique fund of about $100 million.
The IT-focused Tai said he intends to start a new Internet company that deals with broadcasting and Internet content and then return to the venture arena. He was reluctant to provide details about his new company, but said it should launch by the end of the year.
Tai, who enjoys working in small groups, said he would like to work in a firm of three to five partners when he returns as a VC.
Despite the division of the two firms, IVP and Brentwood still have funds under management, and their respective partners will continue to oversee those vehicles. Brentwood’s most recent fund, Brentwood Associates IX wrapped on $300 million about a year ago and has finished making new investments, Walecka said. IVP VIII closed on $350 million in the spring of 1998.
The idea to regroup grew out of discussions between long-time friends Yang and Walecka about the possibility of working together. Separately, Brentwood’s health-care team had discussed the prospect of spinning out, and they had approached Crosspoint’s health-care duo with the idea.
“It takes some getting used to, but when you step back and think about it from the point of view of our limited partners … it’s absolutely the best possible thing for us to do for our limited partners, and after all, we’re in a service industry,” said IVP’s Dennis.
Both of the newly formed groups said IVP and Brentwood’s investors were enthusiastic about the new firms, although limited partners expressed concern about how previous IVP and Brentwood funds would be managed for the remainder of their lives. But as IVP’s Robertson observed, the first of the new organizations’ funds will be too young to show much in the way of returns by the time the groups return to market. Therefore, T-Rex II and Pinnacle II will be raised based on the success of previous IVP and Brentwood funds, not on the success of T-Rex I and Pinnacle I.
Dennis said early reports were wrong indicating that the realignment of IVP meant its complete demise. In addition to IVP’s existing funds under management, Dennis envisions the possibility of a new IVP fund sometime in the future, although it would be raised from individuals’ money managed by a new team under Reid’s helm. That said, Dennis notes he has no plans to create such a vehicle now.