Larry Cheng on the Birth of Volition Capital

While many pundits predicted that the financial crisis of 2007-2008 would lead to a big shakeout on the venture-capital stage, there’s been remarkably little change in the cast of characters so far, at least in Boston. But Monday saw the demise of one established Boston venture fund and the birth of another, as the entire crew of Fidelity Ventures, save two partners, announced that they have departed the Fidelity fold and formed an independent firm called Volition Capital.

Shortly after we wrote up the story yesterday, I was able to reach Larry Cheng, a former Fidelity Ventures partner who’s now one of four managing partners at Volition (the others are Andy Flaster, Roger Hurwitz, and Rob Ketterson). Cheng, a Harvard graduate who’s also spent time at Battery Ventures and Bessemer Venture Partners, has won a wide following in the industry through his blog Thinking about Thinking and his frequent tweets (at @larryvc). He filled me in about a few of the reasons behind the team’s departure from Fidelity and the structural details and the new investing focus at Volition.

Cheng says the firm—which will back companies using the remainder of the final Fidelity Ventures fund even as it starts hitting up outside investors to contribute to the first Volition fund—plans to be fairly picky about where it puts its money. It wants to invest only in established technology or services companies with $5 to $50 million in revenues; they have to be at (or close to) breaking even, and they must have founders who haven’t given up too much equity. To find out why, read to the end of the interview.

Xconomy: Congratulations on going independent. How long has this been in the works?

Larry ChengLarry Cheng: Thanks, we’re very excited. I think we formally decided to go down this path over the summer.

X: What’s the main reason for striking out on your own?

LC: The real driver is that the partners have had the aspiration to lead an indendent firm for some time. And we’ve always wanted to expand the sources of capital to include third parties.

X: When you put this spin-out together with the shutdown of Fidelity Equity Partners last summer, it begins to look a little like Fidelity wants to get out of the venture capital and private equity businesses. Was that a factor?

LC: That’s not accurate at all. Fidelty Equity Partners was in a completely different situation. They were closed in 2009 becuse there was no access to debt, which makes it hard to finance a private-equity operation. Fidelity is still very active in venture capital as an asset class, globally. They still have Fidelity Biosciences here, and there’s Europe, Indian, and Asia, where they’re also investing in the venture asset class. After this transition, there won’t be a Boston office or team doing venture investing for Fidelity, but they continue to be very supportive of the asset class.

X: Have you brought the entire Fidelity Ventures portfolio with you to Volition?

LC: I wouldn’t characterize it as “bringing it with us,” but the entire portfolio is covered under the sub-advisory agreement, yes.

X: How does that agreement work?

LC: The best way to put it is that we are managing the portfolio companies on behalf of Fidelity. The ownership structure of those companies remains unchanged.

X: What’s your capital picture for new investments—Have you started raising a new fund?

LC: We’ve been totally focused on completing the launch of Volition and completing the sub-advisory agreement, so we haven’t formalized our fundraising plans just yet. In terms of new investments, we still have capital in the existing fund to make new investments, so we are continuing to actively make new investments in the market.

X: So it sounds like you’ve brought a pool of capital with you from Fidelity?

LC: It’s complicated. I wouldn’t say that we have brought a pool of capital with us. The best way to phrase it is that we can continue to … Next Page »

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Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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2 responses to “Larry Cheng on the Birth of Volition Capital”

  1. Congrats Larry on starting your own gig. Change is good, usually. I suspect you are the kind of guy who draws energy from it….if so….I wish you that flood of adrenaline and excitement and inspiration.