New Fund Aims to Spur Venture Capital Reforms

By Scott Duke Harris, San Jose Mercury News, Calif.

Dec. 19–Suggesting that some venture capital colleagues have gotten greedy at the expense of entrepreneurs, the four Internet tycoons behind the Founders Fund on Tuesday touted the creation of a new $220 million investment fund as well as a stock plan designed to reduce tension between entrepreneurs and VCs.

In a teleconference with reporters, the Founders Fund partners alluded to "bad deeds" of other VCs but shied from specifics.

"There have been all kinds of situations with very, very complicated deal structures, where (venture capitalists) are trying to extract as much as possible from a pie, as opposed to growing a larger pie," said Peter Thiel, former chairman and chief executive at Paypal and a director at Facebook. The goal, he said, is to create "less of a zero-sum game."

The Founders Fund partners said the new stock formula would reduce tension between entrepreneurs and VCs by more closely aligning their abilities to achieve liquid financial returns.

Such mechanisms, they said, had been employed successfully in the creation of such start-ups as Yahoo and Intuit, but are now the exception. They said they planned to conduct seminars to enable other VCs and venture law firms to consider the stock plans to improve the entrepreneurial business model.

Founders said its new $220 million fund was raised from a confidential roster of endowments, foundations and institutional investors. Their initial fund, launched in January 2005,

represented their own money and investments from a circle of entrepreneurs. In addition to Facebook, their portfolio includes LinkedIn, Slide, Jaxtr and Xoom. Ironport, which Founders seeded with a $850,000 investment, was recently acquired by Cisco Systems for $830 million.

Contact Scott Duke Harris at sdharris@mercurynews.com or (408) 920-2704.

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