Formation 8 Axes Plans For Third Fund, Lonsdale Now Raising $400M For “8 Partners”

We’ve heard about consolidation in the word of startups; today comes some news about a thinning of the ranks among VCs. Formation 8 — the VC firm co-founded by Palantir’s Joe Lonsdale, Brian Koo and Jim Kim — is winding down its investment activities. Specifically, the VC has sent out a memo to portfolio companies noting that it will not raise a Fund 3, according to a memo obtained by TechCrunch.

The three general partners who founded Formation 8 — Kim, Koo (who is a scion of the family behind Korean tech giant LG), and Lonsdale — were originally united in their original idea for bridging Asia and the U.S. in a wider investment strategy; now things have changed. Lonsdale and Kim plan to focus on U.S. investments; Koo will focus on Asia.

[Update: And now the WSJ is now also reporting that Lonsdale is raising $400 million for a new fund of his own called 8 Partners. Meanwhile, Formation 8 has confirmed our story on its own website.]

The memo notes that Formation 8 will continue to manage current investments, including follow-on rounds for existing portfolio companies, out of “meaningful reserves” that it still has in Fund 2.

We’re publishing below the text of the memo, which was sent to companies that were investments out of Fund 2 from one of the partners. We understand that Formation 8 is due to make a formal announcement later.

The news follows a couple of other developments for Formation 8 and its team. The VC — which was an early investor in Oculus (acquired by Facebook for $2 billion last year) — earlier this year turned its attention to hardware startups and raised money for a separate hardware fund.

That eventually closed at $125 million and was renamed Eclipse Ventures Fund, naming Formation 8’s Lior Susan and Formation 8 CFO Brett Cummings as executive officers on its Form D.

Lonsdale himself had a bit of personal drama resolved this week: a lawsuit accusing him of sexual assault was dropped, and he subsequently dropped a defamation suit he filed against the plaintiff in the first case.

Formation 8 was founded in 2011 with a mission to invest in startups with big ideas for “industry transformation”.

Early on, the VC laid out its ambitious intentions. Its first fund totalled $448 million, and its second — which closed in December last year — was valued at $500 million. In addition to Oculus’ virtual reality hardware and software business, the VC also invested in big data startup RelateIQ, which was sold to Salesforce for $390 million. Formation 8 has over 100 companies in its portfolio.

Among its Asian investments are Yello Mobile, a company that in 2014 made no less than 61 mobile startup acquisitions in a race to build a mobile app factory. It’s not clear how well that strategy is holding up one year on.

In June, Reuters reported that Formation 8 was raising another $400 million for Asia growth, a co-investment vehicle that is near to being closed, we understand.

Memo below.

I wanted to let you know about a new direction Formation 8 is taking in the coming months. We have spent the last four years working tirelessly to do everything possible to make Formation 8 a strong and vibrant venture capital firm. We are hopeful we have earned a reputation for building industry-transforming, winning companies, and to that end, we are all extremely fortunate to be working with you.

You are a Formation 8 portfolio company in our Fund 2. That will continue with no changes. However, in the next few days, we will announce that the GPs of Formation 8 will not be pursuing a Fund III. While we have been very successful building this platform, we also recognize that we have different investment styles and subsequently, are exploring different avenues in the venture sector.

Most importantly, however, very little will change for you. We have meaningful reserves in Fund 2 for future funding rounds. I will remain a partner in the current fund and actively involved with my companies in the same way I am now. The objective will always remain to provide any assistance or strategic guidance you need to grow your business.

You will continue to receive the same energy and attention from the Formation 8 community. We will also continue to provide you with growth opportunities including an annual CEO Summit and networking events.

All of the partners, including me, will continue to be active and develop new platforms. But, first and foremost, we want to reiterate our commitment to ensuring you continue to get the resources you need to win.

It is a pleasure working with you and I look forward to continued collaboration and winning for many years to come. Please let me know if you have any questions or concerns.


Updated with further detail about the Asia fund, details of Lonsdale’s new fund.