Thiel-Linked Silicon Valley VC Fund Probed By Feds

Federal investigators, including the FBI, have been probing the ‘conduct and practices’ of Mithril Capital – the Austin, Texas-based venture capital firm co-founded by billionaire Peter Thiel in 2012, according to Recode – whose dramatic conclusion is that the investigation “threatens to destabilize the world of Thiel.” 

Whether that’s true remains to be seen, as Thiel “who has personally given a total of $300 million to the firm” is “tied to Mithril by reputation,” and “is not involved in Mithril’s day-to-day operations,” according to the report. In other words, Thiel’s name and money are attached to the firm and its $1.3 billion in AUM – but that’s about it. 

At the heart of the investigation is whether Mithril’s leader, Ajay Royan, committed financial misconduct by under-investing while raking in a likely $20 million in management fees, “an unusually large haul for a venture capital firm that each month has a smaller and smaller staff and therefore smaller and smaller expenses,” (and a figure disputed by Mithril). 

At least 75 percent of the firm’s management company is owned by a Cayman Islands limited company that is, in turn, owned in excess of 75 percent by Royan, according to legal documents. So some of that money is going to Royan directly as salary. –Recode

Make no mistake, the Recode report is a speculative hit-piece – and isn’t the first time they’ve written about the Thiel-linked venture capital firm, but there is a federal investigation underway as confirmed by Mithril. How it will affect Thiel – who has virtually nothing to do with the company, is anyone’s guess.

A federal investigation could subject Thiel, who has not publicly distanced himself from Royan, to new scrutiny as investigators put the firm he co-founded under a microscope. It could also stain the reputation Thiel has established for having a Midas touch in investing. –Recode

According to the firm, “This is a foiled plot by a self-serving ex-employee. There are no allegations from any government agency, or any [investor.] Nevertheless, our attorneys are in contact with government authorities in order to protect [investors], employees, and portfolio companies against any extortionate behavior.“

That said, Mithril appears to be going through a rough patch – to put it lightly: 

In the months since Recode reported on unanswered financial questions at Mithril, things have deteriorated, according to people familiar with the matter. The firm has lost staff and has adopted a more defensive posture. Two of the other managing directors at Mithril, Crystal McKellar and Jim O’Neill, recently left the venture capital firm in contentious exits, the people say — departures that until now haven’t previously been reported.

Those two departures, which are at least the sixth and seventh people to leave the investing team since the spring of 2016, have essentially stripped a shop with more than $1.2 billion in assets down to a bare-bones operation whose remaining senior full-time employees consist of Royan, CFO Anuja Royan (his sister), and a close ally named Paul Leggett.

That shrinking staff list might explain why the firm also removed the “Team” page from its website about two months ago, along with other tabs. Its entire website now features just a single substantive paragraph of information about the firm. –Recode

According to the report (and totally denied by all parties) is that Silicon Valley investment adviser, Cambridge Associates, is also poking around for signs of financial mismanagement. “The firm’s clients have invested millions into Mithril’s second fund, but some of those clients are now, in turn, frustrated with Cambridge Associates, which recommended that they invest in Mithril in the first place.”

Read the rest of the report here.