St. Paul Venture Capital Divides Into Two New Firms –

After 14 years, St. Paul Venture Capital (SPVC) has split into two new venture firms-Split Rock Partners and Vesbridge Partners.

SPVC founder Patrick Hopf will not be involved in either of the spinoffs. He took what the firm described as a “sabbatical” in summer 2002 but never returned. Hopf later formed a VC firm focused on the consumer retail market but it folded earlier this year.

Now back in an operating role with startup Better Life Media Inc., Hopf expressed regret at the breakup of his old firm. “I’m disappointed to see this because I was the guy who started the firm and helped build the brand over the years, but things change,” he says.

Representatives of Split Rock and Vesbridge declined to discuss fund-raising efforts or the target sizes of their new funds, except to say that St. Paul Travelers has pledged an undisclosed amount of financial support for each.

“We believe smaller, focused funds are better positioned to generate superior returns for venture investors, and this new structure facilitates that approach,” says Zenas Hutcheson, one of two managing general partners with SPVC, who will join Vesbridge. “It’s also been four years since we raised our sixth fund, and we felt that it was at the right stage for us to do something like this.”

Vesbridge, based in Westborough, Mass., will focus on early stage networking technology and Internet infrastructure plays nationwide. Split Rock Partners, which will keep SPVC’s Minneapolis headquarters and an office in Menlo Park, Calif., will focus on early stage opportunities in medical device, specialty pharmaceuticals, enterprise software and Internet services. (Split Rock takes its name from a historic lighthouse on Lake Superior, rather than as an allusion to the breakup of SPVC.)

As part of the split, SPVC and St. Paul Travelers Cos. have agreed to reduce the size of SPVC’s sixth fund to $675 million. The vehicle originally was capped at $1.3 billion, but that total was cut down to $970 million following the sale of VC fund interests in 2002.

Even at $675 million, SPVC still has about $180 million of un-invested capital. Almost all of it will be used for follow-on investments in portfolio companies, which will continue to be managed by former SPVC partners.

SPVC was founded 14 years ago, when St. Paul Fire & Marine Insurance Co. asked Hopf to help launch an independent venture capital investment arm. Hopf was a former consumer company CEO who had since moved over to T. Rowe Price, but he jumped at the opportunity to start something from scratch.

Hopf envisioned SPVC as a fund-of-funds practice, but such activity was quickly supplemented by direct investments in early-stage companies. The firm’s $750 million fifth fund, for example, included $500 million for direct investments and $250 million for limited partner interests.

One year later SPVC raised $1.3 billion from sole investor St. Paul Fire & Marine, and the direct-to-indirect ratio had risen from 2-to-1 to nearly 3-to-1. By 2002, the firm had completely exited the fund-of-funds business via four secondary market sales to Lexington Partners.

Over the years, SPVC has morphed from a Midwest phenomenon into a national one. The firm opened offices on both coasts, and even launched seed-stage affiliate funds Quatris Capital in Minneapolis and Flying W Capital in suburban Philadelphia.

Such changes in size and scope also led to internal changes, including a 1998 move to decentralize decision-making. Rather than having one investment committee overseen by Hopf, the firm began giving certain measures of autonomy to investment teams based on industry expertise and/or geographic location.

When Hopf stepped down in early 2002, the firm formalized its structure by forming a pair of divisions run by Stassen and Hutcheson. Each division was free to pursue its own investment strategy and was allocated its share of fund and management fee capital. By late last year, however, it had become clear that the only natural evolution was to split SPVC in half.