Lott Breaks Away from Capital Dynamics

Former NFL defensive back star Ronnie Lott resigned last month as an executive with Capital Dynamics, the Swiss-based alternative asset manager that earlier this year assumed management control of the funds-of-funds raised by Lott and others under the HRJ Capital brand.

In a brief email obtained by peHUB, a website operated by VCJ publsiher Thomson Reuters, Capital Dynamics thanked Lott for “for his contributions to the company and wish[ed] him well in his future endeavors.” It declined to comment further on Lott’s departure, noting that personnel matters are private.

Lott was a managing director in business development and was “responsible for maintaining and fostering relationships with key clients,” according to Capital Dynamics’ website.

HRJ was formed in 1999 by ex-San Francisco 49ers players Lott and Harris Barton, with Joe Montana joining the following year. Their firm was initially called Champion Ventures and it invested professional athletes’ money in such notable venture funds as Accel Partners, Benchmark Capital, Kleiner Perkins Caufield & Byers, Mayfield Fund, Mohr Davidow Ventures, Redpoint Ventures, Sequoia Capital, Summit Partners and Technology Crossover Ventures.

Montana left in 2006. The firm had by that time already changed its name to HRJ Capital and broadened its investor base to raise money from institutional investors. HRJ also began investing in buyouts, real estate and hedge funds.

The firm became one of Silicon Valley’s more popular investment shops, in part because of the celebrity football stars attached to the roster.

However, HRJ was ultimately felled by a dangerous reliance of “warehouse loans,” or bridge financing that allowed HRJ to invest from funds-of-funds that it had not raised in full. The strategy worked when the fund-raising environment was at its peak, but proved disastrous late last year when HRJ invested nearly all of a $250 million-targeted fund that only managed to raise between $110 million and $130 million.

HRJ subsequently defaulted on a loan from Silicon Valley Bank, which included certain management company assets, including revenue streams, as collateral. The immediate impact was that payroll was not being met and personnel began departing. Sources familiar with the situation say that the collateral consisted of some of Lott and Barton’s personal assets, including at least part of the mortgage on one of Lott’s homes.

About three months after the default, Capital Dynamics agreed to take over management of HRJ’s funds-of-funds. It also reached an agreement with Silicon Valley Bank, which included at least a partial repayment of the defaulted loan.

It is important to note, however, that Capital Dynamics did not acquire HRJ Capital itself, and HRJ subsequently wound down its operations.

The goal for Capital Dynamics was to expand its U.S. fund-of-funds business, which was formed in 2005 via the acquisition of Westport Private Equity.

In acquiring the assets of HRJ in July, the Capital Dynamics team and Lott and Barton had nothting but praise for each other. “The founders of HRJ, Ronnie Lott and Harris Barton, will join Capital Dynamics Inc. as Managing Directors whilst Howard Fields will join as a Managing Director and head the real estate investment team,” Capital Dynamics said in a press release. “These additions to the Capital Dynamics Inc. team will greatly strengthen the firm’s West Coast presence, particularly in terms of its venture capital activities. As part of the transaction, and in order to further build upon the US venture capital relationships, Capital Dynamics Inc. will move its California office to 2440 Sand Hill Road, Menlo Park.”

In that same press release, Lott said: “We very much look forward to joining Capital Dynamics. Our access to top-tier U.S. VC complements the great service and product platform Capital Dynamics has built. Through the process we came to understand and fully embrace Capital Dynamics’ vision of its full dedication to clients, institutional quality investment management and a focus on investing with top-tier managers in the industry.”

Barton stated at the time: “We have received a warm welcome in the organization and are truly excited about joining the team. Capital Dynamics’ clients are likely to benefit from the improved access to top-tier U.S. venture funds and the opportunity to participate in real estate fund of funds. The enlarged US team will allow us to even better service our clients on the West Coast. Capital Dynamics has taken great care and has done a great job in ensuring that the transition will be smooth.”

Barton, a former offensive lineman for the 49ers, continues to work with Capital Dynamics as “a Managing Director in the Business Development team and is responsible for maintaining and fostering relationships with key clients,” according to the firm’s website. Barton is also said to be part of an effort to raise a new fund-of-funds called Champion Ventures VII. —Dan Primack