UC Losses Venture Capital Disclosure Court Battle

August 29, 2003 (PLANSPONSOR.com) - The University of California's (UC) battle to keep its venture capital investment data behind closed doors was handed a defeat by a California state superior court.

The Alameda County Superior Court ordered the university system to divulge detailed information about its venture capital fund holdings.   Holding fast to his original ruling, Judge James Richman found that the public interest in the disclosure outweighed claims by the university system to keep its venture capital investments cloaked, according to a San Francisco Chronicle report.

The latest blow to UC came after the university filed a motion with the court, asking it to reconsider a similar ruling made on July 24 (See CA Judge Orders UC Venture Capital Data Release).  The lawsuit prompting the July ruling, filed in April by the Coalition of University Employees and the San Jose Mercury News, argued that UC is required to disclose the information under state public records laws.  UC attorneys, meanwhile, say the information is a trade secret of the private consultants who calculated the investments and that making the information public would violate confidentiality agreements.

Out Ventured

Already the effect of public disclosure of private equity is being felt.   Earlier in the week, Menlo Park-based venture capital firm Sequoia Capital told UC to divest its holdings in the firm’s funds.  The decision by Sequoia was linked to “the spate of Freedom of Information Act requests with which [UC’s] office has been bombarded,” said Sequoia partner Michael Moritz in a letter to UC Treasurer David Russ, in addition to the earlier disclosure ruling by the court (See  Sequoia Chopping Off UC Venture Ties ).

However, UC is not alone in the sudden loss of its venture fund investments.   In a similar action, Sequoia asked the University of Michigan to withdraw as an investor, saying it feared the Michigan university’s disclosure of performance and other data Sequoia considers confidential.  This was after, the Michigan university disclosed Sequoia’s basic financial performance data, called “internal rates of return,” to comply with that state’s freedom of information laws in February.  Sequoia later accepted Michigan back as an investor, but it changed its mind again late last month.

UC’s loss of the Sequoia investment means the university must now look for another oasis in a recent desert of investing despair. Over the years, Sequoia has returned more than $508 million to the university on its investments of $110 million.   Further, Sequoia had recently given UC the largest allocation of the firm’s recently raised Fund XI, a fund that has a total estimated valued of $385 million. “We would clearly prefer to continue serving great public institutions such as the University of California if we felt confident that all of our information would remain private,” Moritz wrote, adding “but I’m afraid that today’s climate is so inhospitable that we have no choice but to seek clients who can offer the assurance that our information remains confidential.”