Last week's Midas List profile of venture capitalist Jim Breyer notes how several longtime Accel Partners investors – including Harvard and Princeton – bailed as the firm was beginning to raise its ninth fund. Obviously a bad call, given that it the ninth fund invested $12.7 million in Facebook at a valuation of just under $100 million -- a coup that should make Accel IX one of the top-performing VC funds in history.
What the profile fails to mention, however, is that those Ivy endowments actually passed on the ninth fund not once, but twice.
Accel Partners originally raised $1.6 billion for its eighth fund in 2000, but later realized that it had way more capital than it knew what to do with (due to the dotcom crash).
Unlike other firms that simply cut their fund sizes, however, Accel proposed a structure whereby the $1.6 billion vehicle would effectively get split in half. The first “fund” would continue to be invested up-front, while the second “fund” would be invested once the first one was tapped. In other words, it was a ploy to basically double the lifecycle of existing capital commitments, and to avoid future fund-raising difficulties.
Many Accel investors were outraged, and called reporters like me to vent. They also voted against the plan, after which Accel would institute a pair of more traditional fund size cuts. One of those things that was perfectly understandable at the time, but a total disaster in retrospect...