Political meltdown

A California venture firm is facing investor departures over political giving.

A venture capital firm based in Los Angeles is seeking to stem the withdrawal of its limited partners, who are reportedly angered by the political giving and solicitations of the firm's two founding partners.

ITU Ventures, founded by Chad Brownstein and Jonah Schnel, closed its third fund in February, rounding up a total of $120 million (€94 million) from a group of A-list LPs, including Harvard Management Company and the California Public Employees' Retirement System.

But a report in the Los Angeles Times last month said that several of ITU's investors, including Harvard and several unidentified state pension plans, are dissolving their partnerships with the venture firm over what the LPs view as improper political giving and solicitation.

Brownstein and Schnel admitted in the report to having ?suggested? to executives of ITU's portfolio companies that they give political contributions to certain candidates. But the two did not ?pressure? anyone, they said.

In addition, ITU Ventures has been a major political donor to politicians tied to the public pensions that committed to the venture firm. For example, the firm's principals gave $19,500 to California gubernatorial candidate Steve Westly, as well as $20,000 to competing candidate Phil Angelides. Both candidates sit on the board of CalPERS, which committed $23.8 million to ITU Ventures' most recent fund.

ITU portfolio companies in Colorado and New Mexico gave a combined $20,000 to Westly's campaign (who lost in the Democratic primary to Angelides). Three portfolio companies in California gave a combined $28,000 to the campaign.

In an interview with the LA Times, Schnel said the investors became concerned initially when several key professionals left ITU. ?The fact that this political stuff got brought into the conversation threw gas on the fire,? he said.

According to the report, the partnership agreements between ITU and its LPs allows the investors to dissolve the partnership for ?no reason or for any reason.?

In a letter to investors, quoted in the report, ITU's principals wrote the pull-out ?may destroy the ITU brand that we have created so carefully.?