Losing Velocity? What Does Jon Miller’s Defection Mean for VC Firm?

Early Saturday morning, Ross Levinsohn confirmed reports that Jon Miller — his investment partner for the past several years and former CEO of America Online — is heading back to the operating world, as News Corp.’s new head of digital media. The deal isn’t official yet, but is expected to close once Miller’s non-compete with Time Warner expires this Tuesday at midnight.

Most of the related coverage has focused on what Miller’s move could mean for News Corp., but I’m more interested in the ramifications for Velocity Interactive Group — a VC firm that Miller and Levinsohn helped form in late 2007, alongside the dysfunctional remains of ComVentures.

My gut reaction is that it may prove fatal, particularly given Velocity’s difficulty raising new money even with Miller. On the other hand, it’s also possible that Miller’s presence was a double-edged sword for certain LPs, given his well-known (and now indisputable) wanderlust. Not that his departure is a net positive, but perhaps it’s more a flesh wound than a death blow.

I discussed both scenarios yesterday with Levinsohn, whose typicall ebullience was subdued either by sadness or exhaustion (or both). “This is not catatrophic for Velocity, or the end of the firm,” he says. “But losing John is obviously very dissapointing for me personally. He’s a good friend, and I’ve loved working with him.”
Levinsohn continues: “Jon, and to some degree me, got offered jobs all the time. Jon would seem to get offered a new one each week. LPs said it was distracting, so in that sense there is now more stability, more certainty. I’m not sure that there is a perfect scenario in which to lose a partner, but there are worse things than to lose one to one of the biggest buyers of Internet companies, and to do so on good terms. Plus, now I guess he’s one of our outside limited partners.”
Finally, Levinsohn insists that Miller never had an interest in running or buying Yahoo, as had been reported in a UK paper last November. “We had numerous conversations about what we could do to help, but they were always from an investor perspective. Our discussions with Icahn and others were about making investments or taking board seats, not about taking over.”
Those Yahoo discussions didn’t lead to any transactions, but they are worth keeping in mind when looking at Velocity’s future activities. It has very little dry powder remaining from the $300 million fund that ComVentures raised in 2005, and could try bolstering its reputation via engagements that involve more strategic advice than actual dollars.
For example, last year Velocity participated in a hostile bid for CNet, which also involved hedge fund Jana Partners and venture firm Spark Capital. Unlike Jana and Spark, however, Velocity did not contribute any equity — and only received a few million dollars in fee-related compensation.
Levinsohn says that Velocity is close to finalizing a pair of new deals, but declined to do into further detail. He also says that Miller’s four board seats — Broadband Enterprises, CrowdFusion, Publish2 and True/Slant — will be reassigned to both himself and fellow Velocity team member Mickie Rosen.
It does not appear that Miller’s departure can trigger a key-man clause in the existing fund, which means that LPs will not be asked to ratify a continuation of the investment period. So business continues, even if it’s not as usual.