Thursday, May 7, 2009

Fidelity Ventures: Ignore the Rumors, Everything's Fine

Regular readers of the blog know that I don't traffic in rumors... but I wanted to try to fact-check the info about Fidelity Ventures that I'd been hearing through the grapevine over the past week.

Four separate venture capitalists at local firms have told me that Fidelity is stepping back from its commitment to Fidelity Ventures, and looking for other limited partners who might want to put money into the next Fidelity Ventures fund. (Historically, Fidelity has been the lone LP backing Fidelity Ventures.)

"They debated shutting it down, but their intention is to raise another fund," the founder of one local VC firm told me. "My belief is that they're trying to go through a transition here from a Fidelity-controlled fund to one where it gets smaller, and Fidelity's commitments will be smaller." In 2007, Fidelity Ventures expanded the size of Fund IV from $250 million to $400 million; that's the fund they're currently investing out of.

Another managing partner at a different VC firm said he'd seen a number of resumes from Fidelity Ventures partners and associates. "The returns haven't really been there, and for Fidelity, VC and private equity may have just gotten too big and too expensive," he said.

"They've started a process to explore how they might raise traditional capital," said another managing partner. "These one-LP models don't tend to perform very well." (None of these VCs wanted to be named, since many of them have worked or may work with Fidelity Ventures at some point.)

The rumor mill also has it that Rob Ketterson, the managing partner at Fidelity Ventures, has been stepping back from an active investing role (he currently serves on just one board), and partner Larry Cheng has been taking more of a leadership role. (An aside: Ketterson is married to Elizabeth Johnson, one of Fidelity chairman Ned Johnson's daughters.)

Fidelity Ventures' two most recent investments, in Stylesight and Vibes Media, were made last September. On, a "No New Investments Warning" has been posted, alerting entrepreneurs that TheFunded has received "information that [Fidelity Ventures] may not be making investments into new portfolio companies." The firm's most recent exit seems to be the sale, last April, of broadband cable solutions provider Jacobs Rimell to Amdocs for $45 million.

When I called up Fidelity Ventures partner Larry Cheng on Tuesday, he told me that "things are fine," before suggesting that I talk to managing partner Rob Ketterson for more detail. But Fidelity didn't make Ketterson available, instead dispatching spokesperson Adam Banker.

In response to my questions, Banker said that like many other venture firms, Fidelity Ventures is "taking a cautious stance" with regard to new investments, adding, "We have capital to invest." There have been "no significant changes" in staffing, he said, and "all the partners are still here." Finally, Banker said, Fidelity has "never approached limited partners outside Fidelity" to put money into Fidelity Ventures. (Update: Banker says Fidelity made another A round investment in late Q4, without disclosing the company.)

"When things are good and your liquidity events are such that you're making money and you don't require a lot of money from corporate, everyone loves [venture capital]," says Howard Anderson, ex-VC turned MIT lecturer, talking about corporate VC initiatives. "But when you've got cash calls all over the place, and you haven't had a liquidity event since the last ice age, the treasurer asks what's going on." Anderson continued, "If Fidelity [the parent company] was doing really well, this wouldn't make too much difference. But if Fidelity is facing redemptions, looking at cost-cutting, and needing more money for advertising, this becomes a visible thing."

(I'd been developing this as a Globe column, but since Fidelity says there's nothing to the rumors, this seems unworthy of further treatment...)

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Anonymous Jen said...

Not quite sure why you would cave to Fidelity - you have FOUR different sources telling you there's a problem. You need to either pursue this story or let someone else at the Globe do it in detail. You seem to be stretched very thin and may not be objective about the Boston VC scene.

May 8, 2009 5:31 AM  
Blogger Scott Kirsner said...

Hi Jen-

Thanks for the comment. I don't see it as caving, but rather giving them a chance to respond to what has been circulating on the grapevine. Fidelity is a privately-held company, so they don't have to disclose much (if anything) they don't want to. Will continue following what happens there.


May 8, 2009 9:25 AM  

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