How do you manage packs of proud VCs globally? You don’t, unless you’re IDG or DFJ

Venture Beat — Mon, 07 Apr 2008 09:51:22 -0700

Many venture capitalists think of themselves as romantic swashbucklers, mixing raw intelligence with their bulging money purse to skillfully create companies of huge worth. Many of them are lone wolves that gather in regional packs because it’s more convenient.

So how do you harness of a group of these fiercely proud packs across the globe? How do you keep them loyal to your empire’s headquarters here in the U.S.? Answer: You don’t, unless you’re a bit nuts.

International Data Group is one of brave groups that is trying to scale the venture capital model globally. It was one of the first to start setting up regional venture capital funds — from the U.S. to Asia.

But now it is centralizing much of its fund-raising structure, according to IDG Chairman Pat McGovern.

A central team, run by Steve Kahn in IDG’s Boston headquarters will work with investors to put capital in each of these funds. He’s been discussing IDG’s plans recently, after IDG’s Boston unit broke off last month and changed its name to FlyBridge Capital Partners, removing its affiliation with IDG.

The move sparked a minor controversy, around who was responsible for the break. Was it FlyBridge’s mediocre performance, as McGovern said, or was it just time for FlyBridge to break off now that IDG had reduced its investments in the fund, as FlyBridge contended? McGovern will be dropping by VentureBeat’s offices on Thursday, and we’ll have more. But VentureWire discussed the latest IDG reorganization plans in detail this morning.

Creating global venture capital networks is difficult. DFJ has been one of the more successful, in part because it has rolled with the punches. Key partners of foreign funds have defected once they feel they’re not getting compensated enough by the U.S.-based team, but DFJ usually moves quickly to try to restore operations, hiring new partners in their stead. It’s been topsy turvy, but somehow DFJ has managed. Benchmark had a European team, but it relinquished control of that entity (now called Balderton Capital) once it became successful. Sequoia, Kleiner Perkins and others are trying different models too.

IDG Capital, as the centralized operation will be called, will be the hub for raising cash for IDG’s funds in India, Korea and Vietnam, as well as future funds planned for places like Eastern Europe.

It won’t include IDG’s China operations, which has its own well defined set of investors, or IDG San Francisco, which plans to finish raising a $180 million fund next month.

McGovern said the latest move is designed to simplify the process for investors.

VentureWire provided the following summary of where things stand:

IDG is typically the sole backer of its venture affiliates’ first funds. If the fund generates suitable returns to warrant a successor fund, IDG’s strategy is to open up that second fund to limited partners, while committing 10% to 25% of the capital.

The company set up a $100 million fund in Vietnam in 2004, a $150 million India fund in 2006, and a $100 million Korea fund late last year…McGovern expects IDG to establish its first fund in Eastern Europe this fall, with $150 million and an office in Warsaw; a second early-stage Vietnam fund next year with about $200 million; a second India fund with $350 million in 2010; a growth fund in Vietnam with $350 million in 2010; and a similar-sized growth fund in Korea in 2010 or 2011.

IDG has also just finished raising a $600 million later-stage fund with Accel that will invest in pre-IPO rounds in China, as well as possible PIPE deals.