When you visit the website of the Xfund, a venture capital firm that was born on the campus of Harvard University five years ago, you’re greeted by a photograph of the Charles River on a sunny fall day. Click to the “Team” page, and investors Patrick Chung and Hugo Van Vuuren sport open-necked shirts, blazers, and broad smiles. The Xfund’s Twitter feed continues to emit cheery messages every few days, with photos from tech conferences and a private dinner with the British ambassador to the United States.
But behind the placid facade is one of the nastiest divorces that I’ve ever seen in the local venture capital world. Van Vuuren and Chung are hurling suits and countersuits at one another like wedding china. There have been restraining orders, accusations that Chung tried to dupe Van Vuuren into giving up his equal decision-making authority at the fund, allegations of verbal and emotional abuse, and bizarre details like Van Vuuren supplying free baby-sitting to Chung’s infant son.
Where did things go off the rails?
Xfund began with a noble (and capitalistic) goal: to supply early money to startups emerging from university campuses, beginning with Harvard and MIT. Between them, students and professors at the two schools have created companies like Facebook, iRobot, Biogen, Microsoft, and Akamai. The opportunity to place early bets on those kinds of businesses, when they were still at the prototype stage, attracted venture capital firms like Polaris Partners, Accel Partners, Breyer Capital, and New Enterprise Associates, who joined together to provide the money for Xfund.
Meanwhile, Harvard seemed to want to provide more support for campus entrepreneurship; in 2011, the year the Xfund was created, the school opened the Harvard Innovation Lab in the former WGBH studios on Western Avenue in Boston, supplying office space for students working on business ideas. Xfund had its original office in a Harvard classroom building on the Cambridge side of the river, and several well-known administration figures agreed to serve on the Xfund’s advisory board, including Douglas Melton, codirector of the Harvard Stem Cell Institute, and Cherry Murray, a professor and former dean at the School of Engineering and Applied Sciences. (Harvard spokeswoman Tania deLuzuriaga notes that they were unpaid volunteers.)
Despite the ties, Xfund was always clear in press releases that it was “legally and financially independent of Harvard,” and that Harvard wasn’t involved in the fund’s investment decisions and doesn’t invest in companies founded by current students.
David Edwards was one of the Harvard faculty members who worked with Van Vuuren and Chung to set up the Xfund — no small feat at a rather hidebound institution that had never done anything like it. “There is a special place where higher education and the remaking of tomorrow co-exist, and it had been my hope that Xfund would find it,” Edwards writes via e-mail.
Xfund started small, with about $10 million. Van Vuuren hunted for deals in Cambridge while Chung, then still a partner at New Enterprise Associates in Silicon Valley, provided supervision because Chung had about a half-dozen years more experience in the industry. (Both Chung and Van Vuuren hold multiple degrees from Harvard.) But when the Xfund announced in December 2014 that it had gathered a $100 million war chest, called Xfund 2, Chung also left his role at New Enterprise and became Van Vuuren’s equal partner at the Xfund.
Chung told me at the time that while Xfund had been predominantly focused on Boston startups in its first four years, it now had the “capacity to seek and support technically gifted entrepreneurs” regardless of their location, but with an increased focus on the West Coast.
It was around that time when everything began to sour, according to court filings from both sides. Chung seemed to view Van Vuuren as a junior partner, and in texts and e-mails disparaged his intelligence and work habits. Chung had a larger salary than Van Vuuren, and Van Vuuren alleges that Chung conspired with the fund’s attorneys in the waning days of 2014 to get Van Vuuren to sign documents that would give Chung more control over the Xfund’s decisions about where to invest and how to manage the portfolio. But Van Vuuren did sign them.
According to a court filing from Van Vuuren’s side, Chung also “tried to shift the focus of Xfund 2 to the West Coast, against the Xfund investment mandate that was sold to investors and over the protestations of Harvard and other strategic partners. Chung even sought to open an expensive office near his Palo Alto home over Van Vuuren’s objections.”
The duo brought in a corporate coach to try to help them find a way to work together — unsuccessfully. Up through January of this year, Van Vuuren asserts that he was proposing ways for either partner to depart and still be fairly compensated, or to bring on a third or fourth partner to help break ties and bring in other points of view. But by the end of January, an advisory committee of three people representing investors who had put money into the Xfund basically shut it down. They voted to cut the fund’s total bankroll from $100 million to $50 million, and permit no new investments, only “follow on” investments to support companies that had already received backing from Xfund.
After that, in March, Chung attempted to fire Van Vuuren. But Van Vuuren says he still shows up to work at the firm’s Harvard Square office, and he still controls some of the firm’s e-mail addresses. (Through a spokeswoman, Chung declined to comment for this story; but the spokeswoman noted that the fund’s advisory committee recommended, after an investigation, that Chung run the fund.) Chung at one point filed a restraining order against Van Vuuren, saying he feared violence; Van Vuuren pointed out in his rebuttal that Chung and his husband once felt comfortable enough with Van Vuuren to let him babysit their son in their home.
What’s the upshot of all this? Like all messy divorces, no one looks fantastic — not the primary players involved, or the venture firms that helped launch Xfund and should have probably stepped in to referee things sooner. Things may be tough for Xfund companies that Van Vuuren chose to back as they seek to raise more money — including several in Boston. And it will probably be a long while before Harvard again gives its blessing to such a close link with a venture capital firm.
Jo Tango, a venture capitalist at Kepha Partners in Waltham, calls the partnership between Van Vuuren and Chung “a shotgun marriage” in a business where investors need to be able to get along and work closely together over a dozen years or more. “There was a short dating period, if any, and the fund’s strategy was changing, and they were in different cities,” he says. “All those things together create difficulties.”
Edwards says he is no longer advising the Xfund and calls the lawsuits and the fate of the fund “tragic.”
Sometime later this year, we may find out who a judge and jury side with.
Founded: 2011 on the Harvard campus
Investment partners: Patrick Chunk and Hugo van Vuuren
Backing from: New Enterprise Associates, Polaris Partners, Accel Partners, Breyer Capital
Raised: $110 million
Invested in: 23andMe (genetic analysis), Philo (TV delivery over the Internet), Kensho (statistical computing software for financial services), Zumper (home and apartment rental)Scott Kirsner can be reached at email@example.com. Follow him on Twitter @ScottKirsner.