When infighting threatens to destroy a venture capital firm

The disagreements festered, setting off a chain of events that included accusations of abuse, a restraining order application, revelations that a hidden camera was used to record an investor meeting, and an investigation by the fund’s investors.

Xfund’s investors — who include Saudi Aramco and Jim Breyer, the Silicon Valley venture capitalist who helped fund Facebook — have halted its main fund from making investments, according to court documents.

New venture firms often pop up, especially in boom times, when an investor decides to set up shop alone, or with one partner.

[...] their funds, which are created as 10-year vehicles, rarely have to account for their actions and typically lack a strong corporate governance structure.

After the dot-com bust early last decade, which hurt many venture firms, the venture capital industry did not really shake out because of these factors.

The average venture capital fund is active for more than 15 years, so you can be stuck with your investment partners for longer than most average Americans will be with their spouses.

Van Vuuren is considering legal routes to fight his removal, according to two people who have worked with the partners and who spoke on the condition of anonymity.

Chung, a Harvard Business School and Harvard Law School alum, co-founded and advised Xfund while working at New Enterprise Associates; he joined Xfund in 2014 and opened its Menlo Park office on Sand Hill Road, where many venture firms are.

Together, the two men raised $100 million for a new fund and Xfund broadened its focus to Silicon Valley, investing in startups like the apartment rental platform Zumper.

Venture firms take a fee of 2 percent of assets under management every year — that translated to about $2 million a year for Xfund and its four full-time employees.

[...] the investors had limited options to make wholesale changes because the structures of venture funds give the venture capitalists outsize power.

Breyer and others who represented the interests of the investors interviewed the fund’s lawyers, portfolio companies and employees to figure out next steps.