Harvard-Rooted Xfund’s Investment Status in Jeopardy After Partner Clash
Xfund, a venture-capital firm connected with Harvard University and backed by prominent Silicon Valley investors, is in jeopardy after a rancorous conflict between its two managing partners spooked its limited partners.
The fallout for Xfund, whose investors include marquee venture-capital firms New Enterprise Associates and Accel Partners, comes after a dispute between co-founders Patrick Chung and Hugo Van Vuuren.
A rocky relationship turned for the worse in March, when Mr. Chung filed a temporary restraining accusing Mr. Van Vuuren of threatening violence. Mr. Van Vuuren responded in filings accusing Mr. Chung of creating a “toxic” work environment and attempting to “freeze out” Mr. Van Vuuren from the firm and “gain a business advantage.”
Mr. Van Vuuren was terminated from Xfund in March, according to the court documents.
Following the dispute, Xfund recently stopped making new investments because of the conflict, according to people familiar with the matter.
As a result, a limited partner committee overseeing Xfund is considering an amendment to the fund documents that would cut the size of the current $100 million fund in half to $50 million, according to people familiar with the matter. Xfund would only be enabled to do follow-on investing in its existing 11 portfolio companies but not new investments, according to those people.
While Xfund could seek to raise additional funds for new investments, depending on LP agreements, the change could serve a serious blow to the firm’s future. The firm’s investments include personal gene-testing startup 23andMe and financial data startup Kensho.
As part of this proposed amendment, a new management company would be created with Mr. Chung as the sole general partner in the fund. The LP committee is made up of representatives from Breyer Capital, Top Tier Capital and Jasper Ridge, according to people familiar with the matter.
The conflict shows the high stakes consequences when individuals clash in the clubby, close-knit world of venture capital. A previous VC fund implosion occurred in April 2010, when three of the six partners at Bay Partners abruptly left the firm.
Xfund has so far invested about 10% of the fund’s $100 million in capital raised late in December 2014, according to one of these people.
Mr. Chung filed the temporary restraining order against Mr. Van Vuuren in California Superior Court. In it, documents said Xfund corporate counsel sent Mr. Van Vuuren a letter of termination. Those filings also stated that Mr. Van Vuuren refused to acknowledge the termination.
Mr. Van Vuuren then filed a long rebuttal and the restraining order was later withdrawn, according to people familiar with the matter.
The court documents, reviewed by the Journal, trade multiple accusations. Mr. Chung accuses Mr. Van Vuuren of poor work habits and later threatening him, Mr. Chung, with “physical harm.” Mr. Van Vuuren said Mr. Chung revised the fund’s operating agreement to give himself voting control without his, Mr. Van Vuuren’s, knowledge. He also said he never made threats and that Mr. Chung had him baby-sit his infant son.
The documents show that the two founders struggled to work together soon after the firm was founded, signing up to see a corporate coach together in May 2015 to help improve their relationship.
The LP committee did an investigation of the accusations and hired an independent firm, Nixon Peabody, to investigate and speak to both sides as well as its portfolio CEOs, according to people familiar with the matter.
“There was a breakdown in the General Partnership that ultimately required us to terminate Mr. Van Vuuren. Xfund will continue to fully back our existing portfolio companies as we work through this transition and move forward. We are very grateful for the support we’ve received from our extraordinary LPs,” said a statement from Xfund, which is now effectively just Mr. Chung.
XFund, originally called the “Experiment Fund,” started out to source deals out of Harvard University and was wholly owned by Accel Partners, New Enterprise Associates and Polaris Partners. At that time Mr. Chung was involved in the fund while he was still at partner at New Enterprise Associates. Chung later left NEA to join Xfund full time. The vehicle hired Mr. Van Vuuren, a Harvard alumnus, to source investments at Harvard. The later $100 million fund included more limited partners.
Top Tier Capital and NEA didn’t respond to a request for comment. Accel, Breyer Capital and Jasper Ridge declined to comment.
First appeared at WSJ VC