meVC.com Offers White-Knuckle VC Ride to the Masses
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The Internet world's philosophy of trickle-down populism has spawned a new contestant -- meVC.com -- which aims at letting "the little guy" in on those juicy venture capital deals once open only to people with a net worth that rivals most Third World countries.
One can but pray that it is more successful than Bill Hambrecht's OpenIPO which seems to price stock so correctly that share prices instantly stagnate on opening day or have fewer side effects than day trading which has raised the adrenaline levels of everybody from the SEC to the local Guns 'N Ammo Emporium.
Launched with a $4.5 million investment from VC wunderkinds Draper Fisher Jurvetson, the San Francisco-based meVC filed its N-2 SEC registration statement on Dec. 8 stating its intention to raise half a billion dollars sometime in February 2000 through the sale of 25 million shares at a proposed offering price of $20 per share.
Formally named the MEVC Draper Fisher Jurvetson Fund I Inc., the company is structured as a closed-end fund which will invest its proceeds alongside those of DFJ which has been retained to identify, structure and negotiate investments for the fund. They may also invest up to 10% of net assets in an index of publicly traded information technology companies.
And while closed-end funds often trade below their net asset value, meVC said in its SEC filing that it believes their structure is more flexible in the types of investments it can make and will allow it to remain more fully invested in securities that are consistent with its long term objectives.
Shareholders in the new fund need to qualify by having either a net worth of at least $150,000 (not including the value of their home) or a net worth of at least $50,000 (not including the value of their home) and annual gross income of at least $50,000. The minimum investment will be 100 shares according to the SEC filing. The company promises to make distributions of cash and securities to its shareholders of at least 90 percent of the net investment income received from interest and dividends plus net short-term capital gains. "We intend to make the first distribution, which will likely be comprised entirely of investment income from short-term investments in accordance with our investment objective, by Dec. 31, 2000," said the SEC filing. Shares from IPOs or received from the sale of a portfolio company will be distributed pro-rata.
While meVC is technically a separate entity with its own management, it is joined at the heart, brain and wallet with DFJ. Headed by co-founder and CEO Andrew Singer, who was previously with Robertson Stephens & Co., meVC has a compensation relationship with DFJ that leaves both companies with their hands deep in each other's pockets.
According to the SEC filing, the MEVC Draper Fisher Jurvetson Fund I will pay meVC Advisers an annual management fee equal to 2.5 percent of its average weekly net assets, payable in monthly installments. "We have also agreed to pay to meVC Advisers annual incentive compensation equal to 20 percent of our annual realized capital gains net of realized and unrealized capital losses. Payment of this type of incentive-based compensation, referred to as a 'carried interest,' is typical in the venture capital industry. Carried interest payments provide an economic incentive for venture capital fund managers to select investments with the potential to achieve the greatest increase in value over time."