(PrivateEquityCentral.net) US venture capital firm Battery Ventures has laid off nine employees, including two of its partners, and has announced plans to refund up to $51.5m in carry to its investors from its fifth fund.
Taking the profits generated by early investments in the fund made Battery’s general partners subject to the clawback clause included in the fund’s contract. By relinquishing the $51.5m in fees, Battery was able to wipe out the clawback provision.
Partners at Battery began pocketing their 20 per cent share of the profits before returning Fund V’s full principle of $450m to its limited partners, including Harvard University and General Motors.
Fund V closed on $450m in 1999. The fund, which is fully invested, still has 15 portfolio companies. Battery has made three exits from Fund V portfolio companies, and has returned $250m.
“The decision was made in consultation with the LPs,” a Battery spokesperson said, adding it was not made under pressure.
“The lifespan of the fund is through 2009,” the spokesperson said. “There are fifteen companies left in it, so it very well could return the money, but based on the [returns of] 1999 vintage funds across the industry, we don’t know what’s going to happen with it. So we decided to seize the issue now and defer those fees on the fund for the remainder of the fund’s lifespan, and at the same time get rid of the clawback clause with the LPs.”
Battery declined to make the exact terms of the clawback clause public. There is a similar clawback clause integrated into Battery Fund VI. “However, Battery VI does not have a clawback issue because there have been no distributions made to the GPs to date,” a Battery spokesperson said.
Battery closed fund VI in May 2000 on $1bn. The firm is approximately half way through the investment cycle for Fund VI, which has a ten-year lifespan stretching to 2011.
The most significant losses were telecommunications and Internet sector-focused general partners Tony Abate and Michael Darby, who joined Battery in 1999 and 2000, respectively.
“Traditionally, we have put a lot of focus on the communications sector,” the Battery spokesperson said. “That sector has taken a beating over the past year, so we are looking at broadening our scope of sectors,” and broadening the stage of investment away from early-stage deals. As a component of this restructuring, “We’re looking at where we might need to bring on board people who have capabilities in other areas,” the spokesperson said.