Fidelity Ventures team sets up independent firm

Former Fidelity Ventures professionals have formed Volition Capital, with a subadvisory agreement to manage 26 portfolio companies for mutual fund giant Fidelity Ventures.

Former executives from the venture capital arm of Fidelity Investments have spun out to form Volition Capital. 

Volition is being led by four managing partners, including Rob Ketterson, who formerly ran Fidelity’s London-based buyout arm Fidelity Equity Partners. Larry Cheng, Andy Flaster and Roger Hurwitz will be leading Volition with Ketterson. Fidelity Ventures partner David Power decided not to join the new firm. Instead, he will be launching a technology consulting firm, and helping to service the legacy portfolio.

The Volition team made the decision to spin out six months ago, and has spent the past few months completing the transaction. The team is based in the same offices – though it intends to move out by the end of the first quarter – but is operating as an independent firm. The firm hasn’t formalised any fundraising plans yet, but intends to do so in the near guture, Cheng told PEM.

The spinout was a fairly straightforward one, Cheng said. Fidelity Ventures was never a strategic investment arm of the mutual fund parent company. The venture capital firm aimed solely to make high returns for its own limited partners, who included members of the Johnson family, which founded and retains a sizeable stake in Fidelity Investments (Ketterson is married to Elizabeth Johnson, sister of current Fidelity CEO Abigail Johnson), as well as senior executives within the mutual fund company’s IT staff.

I think the portfolio companies selected us historically for a number of reasons, and key among them was the relationship with the partner that they’re working with. Those partners have come over to form Volition Capital.

Larry Cheng

The history of Fidelity Ventures dates back to 1969, around the time the mutual fund company was launched. Founder Ned Johnson saw venture capital as a good business and used proceeds from his VC operation to support the growth of the more consumer-oriented mutual funds.

The Volition team will continue to manage investments they made under Fidelity’s ownership. These comprise a portfolio of 20 US companies and six European businesses. The European companies will be jointly managed with Fidelity Growth Partners Europe, Fidelity’s European venture capital affiliate.

Fidelity will not have any ownership of Volition, which will pursue investments in founder-owned technology companies that need growth equity, typically generating between $5 million and $50 million in revenue. Previously, Fidelity Ventures had been stage agnostic, and did more early stage deals than Volition will. 

In the past, Fidelity Investments would often become a customer of technology companies that the venture arm invested in. In turn, Fidelity Ventures was in frequent contact with the parent company’s IT division, helping the IT professionals solve technological problems, and also learning firsthand from those professionals about the hot button issues for financial services information technology. 

When asked how the Volition team will fare without the symbiotic relationship with the parent company, Cheng said he doesn’t foresee a problem. 

“I think the portfolio companies selected us historically for a number of reasons, and key among them was the relationship with the partner that they’re working with, and those partners have come over to form Volition Capital,” he said.

Volition still has an undisclosed amount of dry powder to invest from the existing fund. The team did three deals in the fourth quarter, despite dealing with the transition to independence.

Last year three professionals from Fidelity Equity Partners spun out to form Canter Equity Partners, after the lack of debt financing in the marketplace led Fidelity to shut the division down.

Fidelity Biosciences, the venture division of Fidelity focused on biopharmaceutical and medical technology companies, remains unaffected by the most spin-outs.