DFJ digital media effort fades to black

A proposed joint venture fund between Creative Artists Agency (CAA) and Draper Fisher Jurvetson (DFJ) that was aiming to raise $150 million to $200 million has fallen through.

Brian Garrett and Rick Smith, former partners at Palomar Ventures, worked with CAA to see if they could raise the fund, but they jettisoned the concept after determining that it would take too long to raise it, Garrett told VCJ.

“It was almost entirely macro-economic factors,” Garrett says. “We had taken a pulse of the market. Whether it was with CAA or without CAA, it was going to take a long time to raise a big fund. With the capital markets where they’ve been for a while, it’s hard for almost anyone to raise a big fund. We felt we were going to miss too many opportunities if we didn’t put something together as soon as possible.”

Garrett and Smith left Palomar in 2006 and began gauging interest the following year in the CAA/DFJ project.

Although the fund is not moving forward at this time, DFJ has not ruled out a potential collaboration with CAA.

“Our ‘unannounced’ exploration in this area is still a work in process,” says DFJ Managing Director Don Wood, who maintains the DFJ affiliate network.

Garrett and Smith are currently raising a digital media seed fund for their Santa Monica, Calif.-based firm, Crosscut Ventures. Its inaugural fund is targeted to raise $10 million to $12 million, with a hard cap of $25 million. The pair had raised $4.7 million as of August and they expect to hold a second close this month and a final close in the next nine months.

Crosscut is turning to high net worth individuals to raise the fund, including successful entrepreneurs in the Los Angeles area. MySpace co-founder Brett Brewer is among 11 investors that have committed to the fund, according to a regulatory filing.

Fund-raising has slowed, Garrett says, as several potential investors with close ties to Wall Street became more conservative in light of the ongoing financial crisis.

With the capital markets where they’ve been for a while, it’s hard for almost anyone to raise a big fund. We felt we were going to miss too many opportunities if we didn’t put something together as soon as possible.

Brian Garrett

Crosscut Ventures has already made three investments, each about $500,000. The firm backed image licensing company GumGum, online document sharing site DocStoc and Verve Wireless, a company building a mobile advertising network for local news outlets.

Although Garrett and Smith had been looking at a much larger fund at the end of 2007, the smaller fund seems to suit the two just fine.

“Without a doubt, it’s the best place to turn $1 into $3 right now,” Garrett says of early stage investing. “There are just not a lot of management fees associated with a small fund. We do well if our investors do well. If they don’t, we’re not buying faster cars and bigger houses.”

Crosscut appears to be similar to the Mail Room Fund, a joint venture between Accel Partners, Venrock, The William Morris Agency and AT&T that was launched earlier this year. Los Angeles-based Mail Room Fund has “tens of millions of dollars” to invest, according to press reports, but no official size has been stated.

The Mail Room Fund is run by Richard Wolpert and typically invests $250,000 in each of its deals.

Garrett says he looks forward to syndicating deals with the Santa Monica, Calif.-based Mail Room Fund, which has so far disclosed one investment. The Mail Room Fund led the seed stage round Los Angeles-based Sometrics. Greycroft Ventures co-invested in the deal. —Alexander HaislipDEALWATCH: Three recent investments by Crosscut VenturesDocstoc_Online community for finding and sharing professional documents.

GumGum_Distribution and monetization platform for online media.

Verve Wireless_Mobile Web technology platform for local media.

Source: Crosscut Ventures