Felicis Ventures raises fund, pledges to always side with founders

SAN FRANCISCO Tue Aug 5, 2014 7:00pm EDT

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SAN FRANCISCO Aug 5 (Reuters) - Felicis Ventures is trying a new tack in the hypercompetitive world of funding startup companies: It is raising a new fund that will always vote alongside the founders of the company it backs.

The venture company announced on Tuesday that it had raised $96 million for the new fund, its fourth.

Aydin Senkut, the founder and managing director of Felicis, said a survey of the entrepreneurs it already funds showed that pledging to vote in line with them would help attract more young companies.

"All of them said it would be a big factor," Senkut said about the entrepreneurs already in his portfolio. "The fact that we're formally committing to them sends a very big signal."

Many venture investors say some situations call for voting against the founders if the backers believe they are on the wrong track on an issue such as key strategy or hiring, for example. But Senkut says that view often backfires, resulting in founders feeling disempowered and losing their drive.

In the current environment, promising startups can often choose among dozens of backers, from independent investors known as angels to established venture firms. Any edge a venture firm can offer new entrepreneurs helps to win deals, venture capitalists say.

While the interests of investors and the companies they fund typically align, especially at the beginning of a relationship, that can change over the years, at times resulting in contentious decisions and long-held grudges.

Sometimes, investors want to replace the chief executive or another key executive, or block a sale of the company if they think they can make more money by keeping it independent longer. They can ram these decisions through against the wishes of the founders if they control more votes on a startup's board.

Ironically, Senkut believes the pledge to always vote with founders could make them more open to ideas they would not consider otherwise.

"It creates positive reinforcement where the founders are more receptive to feedback," he said. "It sets the dialog in a much more positive way."

In an environment where the available cash outstrips promising companies, many venture firms have been touting the concept of letting the founders retain control, although few have formalized it. Felicis says that, although it already generally votes alongside founders, it is now codifying the practice.

Last quarter, venture firms raised $7.39 billion, more than double the amount generated a year earlier, the National Venture Capital Association said.

The Palo Alto-based firm, founded in 2006, has backed companies such as Rovio, creator of the Angry Birds video game; men's online clothing retailer Bonobos; and fitness tracker Fitbit. (Reporting by Sarah McBride. Editing by Andre Grenon)

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