Infighting Threatens to Fell a Venture Capital Firm

“There are no easy divorces in venture capital,” said Venky Ganesan, a partner at Menlo Ventures, a venture firm that is not connected to the Xfund. “The average venture capital fund is active for more than 15 years, so you can be stuck with your investment partners for longer than most average Americans will be with their spouses.”

Mr. Chung, who will remain with Xfund, and Mr. Van Vuuren, who is being pushed out, declined through spokesmen to comment. Mr. Van Vuuren is considering legal routes to fight his removal, according to two people who have worked with the partners and who spoke on the condition of anonymity.

The three people who represent Xfund’s investors — Mr. Breyer, Jenny Chen of Jasper Ridge Partners and David York of Top Tier Capital — also declined to comment.

Xfund began with a small fund in 2011 called the Experiment Fund, originally to invest in start-ups in Boston, including at Harvard. Its primary backer was New Enterprise Associates, one of the nation’s largest venture firms.

Mr. Van Vuuren, a Harvard alumnus, helped create Xfund from Cambridge, Mass. Mr. Chung, a Harvard Business School and Harvard Law School alum, co-founded and advised Xfund while working at New Enterprise Associates; he joined Xfund in 2014 and opened its Silicon Valley office on Sand Hill Road, the stretch of Menlo Park, Calif., where many venture firms reside.


Patrick Chung, co-founder of Xfund.

Steve Jennings/Getty Images for Techfellows

Together, the two men raised $100 million for a new fund and Xfund broadened its focus to Silicon Valley, investing in start-ups like the apartment rental platform Zumper. With tech start-ups soaring in value, Xfund turned into a potentially lucrative business for Mr. Chung and Mr. Van Vuuren. Venture firms take a fee of 2 percent of assets under management every year — that translated to about $2 million a year for Xfund and its four full-time employees.

Yet tensions surfaced between Mr. Chung and Mr. Van Vuuren over who had more control of the firm. Last May, the two started seeing a corporate coach and a psychologist.

The control issue peaked when the two men disagreed last year over the firm’s operations head and executive assistant, Kristen Ostro. Mr. Chung claimed she was doing a poor job but Mr. Van Vuuren wanted to keep her, according to court documents. Mr. Chung eventually fired Ms. Ostro over Mr. Van Vuuren’s objections.

Mr. Chung had the upper hand because it turned out he had a tiebreaker vote for Xfund’s decisions, according to court documents. Mr. Van Vuuren claims in a statement filed with the court that he thought Mr. Chung had a tiebreaker vote only on investment decisions, not operational ones with the firm.

Ms. Ostro did not respond to a request for comment. In an email sent to both men and included in court documents, she said Mr. Chung fired her in retaliation for her claiming that he had been “bullying, and mentally and emotionally abusing me and the entire team.” She wrote that she sought “medical treatment as a result of the workplace harassment.”

Ms. Ostro negotiated a severance package with Xfund and signed a nondisparagement agreement, according to two people who were briefed on Ms. Ostro’s arrangement and who spoke on the condition of anonymity because the contract is private.

In March, Mr. Chung filed a restraining order application against Mr. Van Vuuren, saying that his partner was acting erratically and had verbally threatened him and his family. Mr. Chung also said that Mr. Van Vuuren had physically threatened him in mid-January by trapping him in an alley in Palo Alto, Calif., and making violent motions.

In court filings in response to the restraining order application, Mr. Van Vuuren said Mr. Chung’s accusations were smear tactics. Texts and emails show that Mr. Van Vuuren wanted a more equal 50-50 partnership at Xfund. Mr. Van Vuuren’s court submissions also included video of a meeting that Mr. Chung held with one investor who was worried about the fund, taken from a hidden camera.

The restraining order application was later withdrawn.

By mid-January, Xfund’s investors had learned of the deteriorating relationship between the men and decided to terminate the main fund’s ability to make new investments. But the investors had limited options to make wholesale changes because the structures of venture funds give the venture capitalists outsize power.

Mr. Breyer and others who represented the interests of the investors interviewed the fund’s lawyers, portfolio companies and employees to figure out next steps. A mediation attempt in March failed. Xfund’s lawyers later sent a letter to Mr. Van Vuuren saying he was fired. Mr. Van Vuuren’s lawyers shot back in a letter that the fund structure did not allow Xfund to fire his client.

In March, Xfund’s accounts were frozen after conflicting orders to the fund’s bank by Mr. Chung and Mr. Van Vuuren.

Xfund’s investors had devised a plan to salvage the fund. They proposed cutting the main fund’s size by at least half, with no new investments allowed, according to a letter to investors. The remaining money would be used to support start-ups that Xfund had already invested in, and Mr. Chung alone would oversee the portfolio until all the start-ups had been sold or gone public, which could take nearly a decade. A third party may be appointed to monitor Mr. Chung’s decisions, according to an investor in the fund who spoke on condition of anonymity.

Xfund, under Mr. Chung, is taking other steps to prolong the firm’s life. In a letter to investors last week, Xfund requested $5 million for expenses including legal fees for the fund and its investors, as well as expenses for Mr. Chung.

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