The Inside Story of Venture Capital’s Messiest Breakup | Backchannel
For five hours this past spring, Hugo Van Vuuren thought that, just maybe, things were going to turn out okay after all. On that crisp March morning, the tall entrepreneur climbed the steps of Boston’s imposing John F. Kennedy Federal Building. He wore a suit, and carried two Starbucks drinks—one for his immigration attorney. As he inhaled the late spring air, he noticed that the weather was finally changing. The threat of snow had fully passed in the city to which he’d first arrived 14 years earlier, after immigrating from South Africa. So much had happened since then. He’d earned two Harvard degrees, bought a home, built a company, and recently even begun to fall in love. And, very shortly, he’d win the right to stay, forever.
Inside, past the waiting room where impatient children entertained themselves while their parents waited nervously, a jovial immigration officer with a thick Boston accent asked Van Vuuren a string of questions. Just as they finished, the computers crashed, so the officer said he’d complete the process after lunch. Van Vuuren’s documents would be ready for the following week, the officer told him.
That afternoon, Van Vuuren boarded a train to New York, where he listened to the Hamilton soundtrack as the Rhode Island coast sped by. He texted his girlfriend the good news: He’d gotten a “provisional yes.” His future in the United States started to feel real.
Just after 5 p.m., his immigration lawyer called. His green card application had been rejected. His lawyer advised him to leave the country within a few days; it wasn’t clear when he’d be allowed to return. There had been an issue in his file: a letter that had seemingly been enough to raise alarm. Someone named Chung had written it, his lawyer told him.
Chung, as Van Vuuren knew, was Patrick Chung. Three years earlier, he had been Van Vuuren’s ally and friend when the two men had launched a new investment outfit called the Xfund. It was a bold idea at the time. Facebook had just gone public. Y Combinator was culling Stanford’s campus for enterprising student entrepreneurs. Together, Chung and Van Vuuren believed they had the perfect combination of youth and experience to turn students into founders. A recent Harvard grad, Van Vuuren was beloved by most professors and students. Chung, meanwhile, had nearly a decade of experience on Sand Hill Road (and three Harvard degrees of his own) as an investor at the well respected venture capital firm New Enterprise Associates. The pair planned to pluck the liberal arts-minded tech geniuses out of Harvard, MIT, and beyond, and fund them. Within a year, they’d raised $100 million.
Both had a lot riding on the success of this endeavor. For Chung, who endeavored to land the equivalent of the next Facebook-size deal, it was an opportunity to solidify his reputation as a top dealmaker. For Van Vuuren, the Xfund was a chance to get on the map.
But almost immediately, things went south, and their relationship erupted into one of the messiest public feuds in venture capital after Van Vuuren filed a lawsuit against Chung. At issue was control of the fund itself, and whether Chung had manipulated Van Vuuren into signing that control over to him. Fallout from the conflict would eventually cost Van Vuuren his job, his company, and his right to remain in the United States.
I spoke with more than three dozen people over the last few months to try to understand what really happened with the Xfund. It’s a story that’s so complicated that the two parties involved disagree on the most basic facts of the timeline. What’s clear is that from the start, they had clashing visions for what they were building. The tale of Van Vuuren and Chung’s partnership and its demise offers a window into how power really works in Silicon Valley, where personal relationships are the most important currency and, in order to protect capital, investors are more likely to place their bets on people they know and trust. It’s a story that Chung is ready to archive, but one that Van Vuuren still can’t bring himself to accept. He believes he was wronged, and remains obsessed with laying bare a system that didn’t work in his favor.
In retrospect, Van Vuuren wishes he had done many things differently. But more than anything else, he wishes he had never gone into business with Patrick Chung.
Coming to America marked the beginning of a fairytale life for Van Vuuren. In Pretoria, South Africa, where he grew up, the people around him were enmeshed in the chaos of a fast-changing, post-apartheid culture, in which getting power was about manipulating a rigged system. By contrast, Van Vuuren believed the US to be a meritocracy. If you were bright and worked hard, you could get ahead.
He was a good student and a gifted athlete. He had his eye on Oxford and Cambridge, but because finances were tight, a guidance counselor recommended he check out American schools, where financial aid was more readily available. He applied early action to Harvard, and got a generous scholarship.“I came to Harvard, and I never looked back,” he says now.
Van Vuuren arrived on campus just as the second tech boom—the era we now call Web 2.0—was taking off, and Silicon Valley investors were scouting colleges for brainiacs with laptops. It was an uncomfortable moment for a conservative institution like Harvard, which had never promoted the entrepreneurial paths that Stanford’s students had followed, instead favoring a more traditional academic approach to educational pursuits. Breaking into the nascent tech boom required a migration west. When Zuckerberg wanted to build Facebook, he dropped out of Harvard and moved to Palo Alto. Y Combinator started programs simultaneously in Cambridge and Palo Alto, but within a few years, it shut down the Massachusetts branch to focus on California. Until 2008, the year Van Vuuren got his BA in economics, the school had never formalized its efforts to help engineering program candidates turn their ideas into businesses. For an entrepreneurially-minded guy like Van Vuuren, this limitation was an opportunity.
At Harvard, Van Vuuren got into numerous finals club; won MIT Media Lab, TED, and PopTech fellowships; and was active with a sexual assault prevention group called MenSpeakUp. He studied with engineering professor David Edwards, who became a mentor to him; after Van Vuuren finished his economics undergrad degree, he directed a project Edwards had launched called The Lab. He was a campus star. “I can’t even think of anybody who didn’t just love him and think he was a wonderful, funny, terrific person,” says Liz Liao, who worked daily with Van Vuuren that year in her role as a Director of Administration at Harvard.
Van Vuuren visiting Harvard in 2013.
The precursor to the Xfund was the Experiment Fund, a $6 million seed fund that launched in 2012, just as Van Vuuren finished a masters in design. It was Harvard’s first foray into blending entrepreneurship and academics, and the institution ventured into the matter gingerly. The Experiment Fund was set up as a company funded by three big-name venture firm: NEA, Accel, and Polaris. Van Vuuuren signed on as the fund’s on-the-ground person, while Chung helped represent NEA’s interests. (Both Chung and Van Vuuren are considered cofounders of the Experiment Fund, along with three other investors.) “There was the realization that Patrick had the experience, but Hugo had the DNA that made it make sense,” says Edwards, who was an early adviser to the fund. “Patrick was very lucky to have Hugo, and Hugo was lucky to have Patrick.”
In the fall of 2013, as the Experiment Fund finished up its second year, Chung and Van Vuuren had dinner at UpStairs in the Square, an iconic Cambridge restaurant that has since closed. That’s when Van Vuuren first remembers discussing the possibility of working with Chung to create a new fund, which they’d call the Xfund. Chung lived in the Bay Area, and saw an opportunity to expand the investing model beyond the Harvard and MIT campuses. It seemed exciting to Van Vuuren, too. He considered Chung a friend, and thought they’d work well together.
It took a few months to sell everyone involved on transforming the Experiment Fund into Xfund. The pair had to start and raise a new venture fund, and then convince NEA, Polaris, and Accel to sell the original Experiment Fund to this new entity. They agreed to an ownership structure that entitled Van Vuuren to 49 percent of the distributions and Chung to 51 percent. (Yes, that may seem odd, but it had to do with Van Vuuren’s visa; in order to qualify for an “O” visa, which is given to foreigners of extraordinary ability, he had to own less than 50 percent of the business.)
From the fund’s management fees, they agreed that Van Vuuren would draw a fixed amount of $250,000 and Chung would draw $750,000, a difference that accounted for his decade of added experience. Beyond that, they’d split the money their investments made—the “carry”—roughly equally, and in the initial agreement, they would each have equal voting rights on investment decisions.
By the time Chung began working with Van Vuuren, he was within shooting distance of a prestigious and lucrative career as a Silicon Valley power broker. After earning three Harvard degrees (BA, MBA, JD) and a Master of Science degree from Oxford, he’d spent nearly a decade at NEA, where he’d led dozens of investments. There are many people who value the contributions he has made to their companies. “He is probably the best networker I have ever met in my life,” says early Facebook founder Andrew McCollum, who now runs Philo, where Chung sits on the board. He was one of a dozen people who reached out to me proactively while I researched this story to offer compelling portraits of Chung’s character, and to assure me he is a good guy.
But Chung had yet to lead the kind of career-making investment that guarantees a starry future among VC’s most elite players, and it was not clear that he had a path to partnership as a consumer-facing investor at NEA, a firm that focused much more on enterprise companies. For Chung, Xfund represented an opportunity to make a name for himself among top dealmakers through large, bold investments.
Chung and Van Vuuren in 2013.
Joseph Ong / Harvard School of Engineering and Applied Sciences
From the start, Van Vuuren and Chung had different goals for what the Xfund would be. Van Vuuren’s chief interest was in continuing to support Boston-area entrepreneurs with small investments. He says now that he’d hoped that together, the pair could grow the fund to maybe $25 million. By contrast, Chung set forth the ambitious goal of raising $100 million. The larger fund would allow the pair to make more and bigger investments, and to target university campuses beyond Harvard and MIT. It would also guarantee they’d bring in the management fees to ensure generous salaries, even if investments took a long time to mature or never came to fruition.
Those first few months the spring of 2014, working together was already proving rocky. For one, Chung and Van Vuuren ran their startup from different offices on separate coasts. Chung worked from NEA’s offices, in the Sand Hill Road complex that houses the Rosewood Hotel and several other white-shoe venture firms. Van Vuuren and his assistant worked from space on Harvard’s campus and, later, nearby Harvard Square.
As the fund grew larger, Van Vuuren says he became uncomfortable. By September 30, it had hit $73 million in commitments. “At that point, I was like, ‘Can we please just stop now?’” says Van Vuuren. “[Chung] was like, ‘No, I need to get to 100.’” By December, they had.
That month, Van Vuuren did something he would come to regret. He and Chung were in the process of hiring a woman named Kristen Ostro to head up operations for the fund. Beyond her salary, Ostro wanted to have skin in the game, so they decided to amend their operating agreement so they could give employees a small portion of the profits from their investments.
Van Vuuren was on his way to South Africa for the Christmas holidays when the amended documents arrived via email. He was in a hurry because his mother’s living situation in a South African province had become unsafe, and he planned to use the trip to help her move to a safer home. He says he scanned over the documents quickly, paying attention to the portion that addressed the employee option pool, and signed them. The documents also contained a provision that gave Chung governance control over the fund. Although Chung says he and Van Vuuren discussed this, and in court documents he provided the court with an email trail showing he’d alerted Van Vuuren, Van Vuuren says he missed it. He didn’t discover that he’d signed away his voting rights for several months.
When he did find out, it was on a Saturday evening in the run-up to the fund’s annual investor meeting. Van Vuuren remembers that Chung convened a last-minute conference call for the four-person team. In the call, Van Vuuren says that Chung threatened to fire them. (Chung denies this, calling it “revisionist history.”) Afterwards, Van Vuuren reached out to a Ropes & Gray associate to make sure that Chung couldn’t do so unilaterally. The associate sent over the management agreement, which spelled out Chung’s full control. As he read it, Van Vuuren was confused. “I was like, ‘This is the wrong version, I’m reading this wrong,’” he says.
From left, Chung, Elizabeth Holmes, Harvard professor Jonathan Zittrain, and Van Vuuren, at Harvard in 2015.
Dean Shu / Harvard School of Engineering and Applied Sciences
A few days later, students and investors crammed elbow-to-elbow inside a building on Harvard’s Radcliffe campus for the fund’s annual meeting. They also celebrated a tradition that had gotten its start in the early days of the Experiment Fund: the annual awarding of the Experiment Medal. Theranos founder Elizabeth Holmes had flown in from Palo Alto to receive it. (This was five months before a Wall Street Journal investigation raised questions about the legitimacy of her startup’s blood test technology.) Van Vuuren was distracted. As the event wrapped up, he pulled aside Ropes & Gray partner Aaron Katz, who’d done legal work for the Xfund. Katz and Chung were close friends; they’d gone to Harvard Law School together, and Katz attended Chung’s wedding.
Van Vuuren and Katz took a walk. “I said to him, ‘Look, the document I saw this morning from your associates tells me that I have one vote for every two votes Patrick has, which essentially makes me an employee,’” Van Vuuren remembers saying. “‘This is not okay.’”
Katz told him not to worry, and that he’d review the documents. Then the next morning, Katz confirmed that yes, that was correct. The revision to the voting structure had been included in the December documents Van Vuuren had signed, which enabled the fund to provide profits to employees. In effect, Van Vuuren had agreed to it.
For a while after that, things were insanely tense. The partners argued. They tried to block each other’s decisions. A prominent startup coach, Rich Hagberg, who’d worked with clients from Dropbox and Twitter, was brought in to help. A year in, the Xfund had invested only a tenth of its money. (Chung takes credit for most of those investments.)
Then, things grew much worse. Chung decided to fire Ostro. Van Vuuren passionately disagreed with the decision and felt she was being targeted for complaining about Chung’s workplace behavior. In an email sent to both partners that was later made public, Ostro wrote that Chung fired her in retaliation for speaking up about challenges in the fund’s workplace culture, writing Chung had been “bullying, and mentally and emotionally abusing me and the entire team,” a condition that she said caused her to seek medical treatment. “Being exposed to this type of behavior for months at a time has caused me countless sleepless nights, major anxiety, and deep emotional distress,” she wrote.
This was one of a number of concerns that eventually compelled Van Vuuren to appeal to the Xfund’s investors for help. He believed he was watching his startup wither and he felt powerless. He decided to reach out to the Xfund’s LPAC—the limited partners advisory committee. The LPAC is a small group of people who represent the interests of investors and advise the fund. Nine days before Christmas, Van Vuuren called the woman who was then the LPAC chair and explained the situation as he said he understood it and as later embodied in court filings, accusing Chung of mismanagement and a slew of other misdeeds. Van Vuuren describes this as a whistleblowing action. Then, certain that the LPAC would intervene, he left to spend the holidays with his family in South Africa and Zimbabwe.
It’s hard to say exactly how the LPAC perceived this series of events. For one, almost none of the investors or LPAC members would speak about it, even on background. But it’s clear they took it seriously. A partner conflict of any sort threatens the safety and success of an investment. Upon returning from his trip in January, Van Vuuren drafted an email to the entire LPAC, further spelling out his concerns and asking for advice; separately, Chung also turned to the LPAC for intervention. The LPAC, in turn, asked the partners to halt new investments, cut the fund in half, and approve an investigation.
Meanwhile, Chung began raising concerns that Van Vuuren was unstable. In a letter to the LPAC that was later made public, an Xfund associate wrote that people were telling her they’d heard from Chung that Van Vuuren was on drugs, had made death threats, and was dangerous. “As a team what do you want us to do?” she asked in her email.
In March 2016, Van Vuuren was in New York, preparing to fly to San Francisco, when he received notice of a temporary restraining order by email. According to the order, Chung alleged that Van Vuuren was threatening him, his husband, and his infant son. The order was brought ex parte, which meant that Van Vuuren had no opportunity to refute it.
Two weeks later, more than a half dozen people showed up in the small California court where Chung’s request to make the temporary restraining order permanent was reviewed. Sitting behind Van Vuuren were both of the Xfund’s former employees and several friends and supporters. “Everyone else the judge was dealing with that day just had an entirely different universe or of issues: domestic violence, child custody disputes, broken marriages, 911 calls, police responses,” says Jennifer 8. Lee, a friend of Van Vuuren’s who’d attended to support him. “And then you have these two Silicon Valley-style men show up in their prim suits, with their lawyers. And the judge is like, ‘What is this?’” With help from a mediator, the two men agreed to stay away from each other.
At the end of March, the LPAC concluded its investigation and made a decision: Chung should run the fund. Chung told Van Vuuren he was out, and sent a letter to investors in which he thanked Van Vuuren for his service. Van Vuuren countered that he couldn’t be fired because he owned 49 percent of the company, and he wrote his own letter to investors. In mid-May, Van Vuuren filed a lawsuit alleging that he’d been duped into signing away control of a business he helped start, among many other things.
This brings us to the matter of Van Vuuren’s immigration status. In the spring of 2016, as the Xfund attempted to terminate Van Vuuren, Chung says he reached out to the Immigration and Naturalization Service to confirm Van Vuuren was no longer with the Xfund. In the process, he says he discovered that Van Vuuren had forged his signature on three letters. Van Vuuren had, in fact, signed these letters in place of Chung. But according to Van Vuuren, he’d gotten Chung’s permission.
That was back in the fall of 2013, when Van Vuuren was applying for his “O” visa, which would allow him to stay in the United States as someone with extraordinary ability. He was still at Experiment Fund then. He was under time pressure, on that November afternoon, to get a letter to his lawyer, and he asked Chung, via text message, to sign it. (These messages are included as evidence in the suit.) But Chung wasn’t in the office. So, Chung texted Van Vuuren to sign in his place, writing: “How about you print and sign for me with my full blessing?”
Chung says that he was referring to another letter in this string of texts. Chung says that Van Vuuren submitted a different letter for his immigration documents, in which he forged the letterhead and misrepresented his salary, as well. Because of the terms of the eventual settlement, there is no ruling to determine who was right. But regardless of how the judge looked at the question of whether Van Vuuren forged these signatures, by simply raising the specter of doubt to the immigration officials, Chung cost Van Vuuren the chance to start over again in the United States.
By all accounts, Van Vuuren’s life is fine. When last we spoke, he had just flown from Cape Town, where he’s building a new condo, to London, where he hung out with his girlfriend. He’s an intelligent, good-looking Harvard grad with great prospects, which he knows, and he doesn’t believe his situation is worth anyone’s sympathy.
But still, he can’t let this conflict go. His reason for holding on is larger than any personal grudge. In his ordered, principled view of the world, where people treat one another with respect, his story just doesn’t make sense. He believed that Silicon Valley was a meritocracy, and he thinks that as an outsider—a younger guy, an immigrant, educated on the East Coast—he was treated unfairly.
What’s more true is that, rather like Hollywood, venture capital is a relationship business. Small networks of people have the ability to help each other get very rich. To succeed, you must compel trust in others, and you must have people who are willing to take action on your behalf.
Chung’s perspective on the conflict, of course, is very different. The Xfund lives on, and now he’s in change. The original investment was cut to $50 million from $100 million, but he has raised new capital from a British investor, Future Planet Capital, so today it’s just over $70 million. It has expanded to other campuses including the University of California at Berkeley, Oxford, and the University of Toronto. Chung tells me that all of the previous investors maintained their investments with the fund, and he recently hired a new partner, Brandon Farwell. (Farwell’s last job was at the beleaguered Rothenberg Capital, so he has firsthand experience of what it takes to survive controversy.) Chung made the reporting lines very clear. Farwell is the more junior partner; Chung has a deciding vote on all governance issues. Farwell assures me he vetted the opportunity well and feels confident about his role. “We’re complementary partners,” he wrote to me in an email after we spoke.
Indeed, the fund has already made several new investments including one in an AI startup called NewtonX. I asked the CEO and founder Germain Chastel whether he was concerned about the firm’s earlier history. He said he’d taken the time to research Chung’s past, and that the conflict “weighs much less than the interactions that we had, and the people I know who vouched for him.”
Many of Van Vuuren friends wonder why he is still so obsessed with calling Chung out. His lawsuit has been settled, and his former colleagues have found new jobs. Isn’t it time, they ask him, to just move on? But Van Vuuren appears unable to do so. “It’s not about the money,” he said in our last conversation. “It’s the fact someone could do this in America.” Even now, Van Vuuren is looking into what new legal actions he can take. Surely, he believes, there has to be something more he can do.
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