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October 14, 2005

Front-running Your Venture Fund

There is a Matt Marshall piece in today’s SJ Merc beating the drum about the surplus of cash available to hot-hot Web 2.0 companies. I’m not going to touch that issue, as I’m not really sure there is anything new to say, but I was interested to catch a throwaway comment part-way through about how Doug Mackenzie ended up investing in blog search firm Sphere:

[Sphere management] selected Doug Mackenzie, a venture capitalist from big-name venture firm Kleiner Perkins Caufield & Byers. Interestingly, though, Mackenzie invested so little money that he did so out of his own side fund, called Radar Ventures -- out of which he doesn't usually invest in Internet companies.

This is the second time in a couple of weeks that I’ve run into a situation where a prominent venture guy front-ran his main employer — I’m assuming, perhaps wrongly, that Mackenzie intends to eventually have KPCB invest in Sphere  — using his own venture fund or an affilliated one.

It raises some interesting questions:

• How common is this becoming?
• How do GPs satisfy the LP investors from their day job that they’re dealing fairly?
• How do partners reconcile the multiple hats that they’re wearing? Who are you when you’re on the board?

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