DFJ Mulls Network Fund

Draper Fisher Jurvetson plans to raise as much as $500 million for a new co-investment fund that would invest alongside its growing worldwide affiliate partners, Managing Director Don Wood told PEHub.com.

The changes with the firm’s affiliate network comes after a year of defections in which it lost DFJ ePlanet Ventures, DFJ New England and Draper Atlantic Ventures. DFJ ePlanet, which raised $650 million in 2000, bankrolled several DFJ successes, including Baidu.com and Skype Technologies.

The new global network fund would look similar to a fund of funds, but would manage parallel investment vehicles to each of the existing affiliates. Each investment from the network fund would be done on a deal-by-deal basis and individual affiliates would have the right to block any investment. The fund would have a 25% carry and a 2.5% fee, the same terms as the DFJ core fund, and it might include an evergreen fund structure.

DFJ’s new affiliate program, which it calls the Matrix II, will include a shared carry pool that each of the affiliates contribute to and benefit from. The network generally gets about one basis point of the returns from an affiliate, or about 4% of the affiliate’s carry. Wood says that GPs like the program because it allows them to diversify their personal investments and lower their risk.

“There was a notion of shared carry before, but it wasn’t really material,” Wood says. “We increased it, which really glues the network together. It forces everyone to pay attention to each others’ deals.” DFJ also shares fees with its affiliates at different levels. A first-time affiliate might expect to pay a greater portion of its fees to DFJ than an affiliate with a longer track record.

The push for a global network fund comes as DFJ recently added Vietnam, Brazil and South Korean funds to its affiliate program. It also has plans to launch funds in Europe, Russia, Japan, Israel and India. And it’s preparing to raise a life sciences and a media fund.

DFJ plans to begin raising the $500 million network fund next quarter. The fund is one of a series of changes DFJ is considering to its affiliate network to make them more appealing to limited partners.

Among the other changes, DFJ plans to launch a Web portal that will make it easier for affiliates to exchange information. It will feature partner blogs, details of the deals each affiliate is examining and information on country trends.

DFJ plans to continue to leverage the buying power of the network to strike deals with recruiting firms, lawyers and banks. It already signs up each of its U.S. affiliates with the National Venture Capital Association and manages the back-office processing duties for about half of its affiliates.

As part of its global network fund, the firm recently hired Director Elizabeth Clarkson to work with Wood to help manage the affiliate network. Clarkson was previously an investment manager at the Omidyar Network.