Last night, we reported that two members of Rustic Canyon’s team have recently parted ways with the firm, partners Mark Mennell and Michael Song. Given the tough fundraising environment, combined with lackluster returns and the additional departure last December of partner Michael Kim, who is now raising a fund-of-funds firm called Cendana Capital, we wondered whether Rustic Canyon might be walking, slowly, toward the dead pool.
The firm told me today that on the contrary, Rustic has been escorting people out the door, with an eye toward raising a Southern California-focused fund next year. “There is a transition underway, one that’s been planned since December 2008,” said Rustic’s founder, Tom Unterman.
“It’s true we raised a [$500 million] fund at the beginning [in 1999], but our last two funds have basically been in the $175 million to $200 million range, which is right for our firm, given that it skews toward early stage,” he said.
“As we looked to a fourth fund and talked with investors about it, it was clear that we’d [again] raise a $200 million fund not a $500 million fund, and that had implications for the size of the firm,” said Unterman, who added that “there is a strong, younger team coming up that deserved the opportunity to run the fund.”
Nate Redmond, who joined Rustic seven years ago after managing investments for the renowned HBS professor Clayton Christensen, has been anointed managing partner; going forward, he’ll lead the firm with Unterman and partner John Babcock, who joined Rustic at its outset. Rustic Canyon is also keeping aboard principals Neal Hansch and David Travers, both of whom have been with the firm for five years.
“What you’re seeing here is a smaller group, not a new one,” said Redmond.
Asked about Renee LaBran, a Rustic Canyon partner who is listed at the site as leading Rustic Canyon’s participation in RC/Fontis partners, a late-stage and buyout fund, Unterman suggested she will not be a part of its new fund, should it get raised.
As those acquainted with the firm already know, Rustic Canyon started life with one LP: the trust of the Chandler Family—former owners of the Times Mirror Co. And Unterman suggests that the Chandlers, who’ve been joined by tens of other LPs over the years, including CalPERS and CalSTRS, are on board with the firm’s plans.
Whether the changes will be as welcome by new investors remains to be seen. Though the firm will begin fundraising in earnest for its fourth vehicle “early next year,” — the firm has some unhappy and vocal LPs, one of whom called peHUB’s story last night “too kind.”
Said this LP, “They’ve had a who’s who of investors from Southern California, including Eli Broad and Steven Spielberg, but I think a lot of those investors would just be happy at this point to get their capital back. [Rustic’s] second fund, at least, is a complete disaster.”
Asked if he would invest in Rustic’s smaller, ostensibly nimbler, new team, the LP said he that he wouldn’t, but he called Redmond “very sharp.”
Added a friend of the firm, the “turnaround” at Rustic Canyon is “overdue, yes, but not too late.”
UPDATE: Renee LaBran writes in to clarify that she currently spends “all my time on late-stage deals for RC/Fontis, although I still participate on the investment committee for Rustic’s venture fund. Going forward, I will raise another fund with Fontis, as opposed to participating in the next venture fund, consistent with my activities for the last several years.”