Pequot Ventures, the venture capital arm of hedge fund Pequot Capital, is angling to break free of its parent, Red Herring has learned.
Citing lessened interest in technology from its hedge fund affiliate, venture capitalists at New York City-based Pequot Ventures have been lobbying their limited partners this week to bless a deal that would let them strike out on their own later this year.
The breakaway venture firm, to be named FirstMark Capital, would move to new offices in New York City if the deal wins approval, and would include about a dozen investment professionals, or nearly the entire staff of the current firm, officials said.
Lawrence Lenihan Jr., managing director and a founder of Pequot Ventures, said the original rationale of the hedge fund affiliation is no longer valid.
"I was a founder of the [venture] business in 1996," he said. "The idea was we'd have sector relationships that were overlapping [with the hedge fund]. Since then we've built out our own expertise and industry capability. At the same time, whereas Pequot Capital used to be 80 percent technology related, now they're about 4 percent technology related."
Mr. Lenihan said the breakup is backed by Arthur Samberg, chief executive of Westport, Connecticut-based Pequot Capital, which manages the hedge funds.
"Art Samberg has been a great proponent [of the restructuring]," he said. "It's not like we're leaving in the middle of the night. I feel like the Irish son living in his mother's basement for 40 years and getting ready to move out."
Among Pequot Ventures' notable exits are: Flarion Technologies, acquired by Qualcomm for $800 million in August 2005; StubHub, bought for about $310 million by eBay in February 2007; Netegrity, nabbed by CA for $430 million in October 2004, and OutlookSoft, snared by SAP for a price rumored to be about $400 million in June 2007.
Mr. Lenihan said the company's location a continent away from Silicon Valley has been a boon.
"New York City has been a great geographical advantage for us," he said. We've made five investments in New York City in the last 12 months…We've deemphasized investments in Silicon Valley. The only way to compete there is on price, which is not a great way to make money for your limited partners."
Among the company's now in the portfolio of Pequot Ventures are: Livegamer, a publisher-supported commerce platform for virtual worlds and massive multiplayer online games; Clickable, a maker of online software to create and manage Internet advertising, and SPADAC, which merges data with geospatial mapping and analytics to forecast future events.
Mr. Lenihan, who would become chief executive and managing director of FirstMark, said that if the limited partners approve, the separation is expected to be effective by June 30.
Other Pequot Venture veterans who plan to move to FirstMark include: Gerald A. Poch, chairman and managing director of the new entity; Richard Heitzmann, managing director; Amish Jani, managing director; Danielle Hootnick, vice president and director of marketing; Brian Kempner, chief operating officer and general counsel; Sterling Phillips, Jr,, venture partner, and Larry Wilson, venture partner.
Pequot Ventures has $2 billion in capital commitments and about $1 billion in capital under management and uncalled capital.