It’s been a strange year for Mithril Capital Management, the venture firm co-founded in 2012 by Peter Thiel and his longtime associate Ajay Royan. Though Mithril enjoyed its biggest exit to date in February, when Johnson & Johnson agreed to pay $3.4 billion — plus another potential $2.35 billion in payments — for the surgical robotics company Auris Robotics, the firm has been characterized in news reports by Recode as in a complete state of disarray and, more recently, for reportedly being investigated by the FBI for financial misconduct.
Mithril is now drawing a line from those stories to former employee Crystal McKellar, who’d joined Mithril from the outset as its general counsel, though she also long held the title of managing director.
According to a new legal petition filed in Texas, where Mithril moved its headquarters from San Francisco earlier this year, McKellar has, over many months, staged a multi-pronged campaign to disparage Mithril, and Royan specifically, possibly to attract its investors to a new, separate venture firm that she has founded called Anathem Ventures. (That’s implied in the filing, anyway.)
Certainly, the petition makes for strange reading.
Among its assertions is that McKellar, who has told friends she was fired from the firm earlier this year, signed a separation agreement with Mithril that included “substantial severance,” a “courtesy title” that it says she asked for and a consulting agreement. But it goes on to say that “almost immediately” after signing these, “Ms. McKellar began to materially breach these agreements.”
As one example, it says, she promised not to engage in any business that’s competitive with Mithril, including any business relating to any portfolio investments that Mithril has ever considered, yet she “completed her signature pages, completing her investment” of $50,000 in one of these companies “mere minutes” after emailing Royan to tell him she planned to invest and offering him the right of first refusal.
It also accuses her of accepting consulting fees from Mithril while taking on jobs that put her in direct competition with the firm, including becoming a managing partner at a hedge fund, Signum, as well as launching her own new venture, Anathem Ventures, in July.
Most surprisingly, the document — technically an “application for temporary and permanent injunctive relief” — says McKellar stirred “discord” with Mithril’s relationships with its investors, financial partners, and service providers.
In one instance, Mithril says, its auditor was sent a letter from a “nameless investor” that “disparaged Mr. Royan and the firm” by “falsely accusing Mr. Royan of ‘lying’ ” publicly about whether he had ever waived some of the firm’s management fees. It further accuses her of authoring “false letters” to senior executives at a “major Mithril company in New England,” saying it determined she had authored the letters through “expert forensic analysis.”
Why McKellar was forced out of the firm isn’t clear, though Recode has reported that numerous members of Mithril’s investment staff have been shown the door over the years, and that this downsizing has troubled co-founder Thiel, who tends to work collaboratively with others and who has engendered loyalty as a result.
Indeed, Royan was previously a managing director at Thiel’s earlier hedge fund, Clarium Capital, as were a handful of early Mithril employees. Today, Mithril is largely run by Royan; his sister Anuja Royan, who is the firm’s CFO; and Paul Leggett, a managing director who handles much of the firm’s day-to-day operations, while Royan is seemingly more focused on the bigger picture. The firm has also hired several more junior people since moving to Austin.
Asked for comment on the filing, Royan suggested he will let the document speak for itself.
Meanwhile, reached via email, McKellar writes that she has not “been served with the suit so I haven’t seen the actual allegations, but those sound pretty loony.”
She added in her statement: “This isn’t about me. This is about what’s going on at Mithril. This is about Mithril’s investors, who are families, foundations, and charities that help the most vulnerable Americans, and the pension funds that permit our public servants to retire with dignity. These investors placed their trust and money in promises that were made by Mithril. I left Mithril earlier this year when it became clear to me that Mithril’s leadership was lying to its investors and that the promises it had made were not going to be kept.”
Pressed for details, McKellar said she couldn’t comment further, though she did note that her role with Signum did not violate her consulting agreement with Mithril, which precluded her not from working with a hedge fund but rather from performing “advisory services or other services for, or provide consulting to, any venture capital firm, private equity firm, or any company that invests in, or manages funds that invests in, venture capital or private equity funds …”
In the meantime, it remains unclear what promises to investors have not been kept, outside of the changing composition of the team, particularly as Mithril was relocating to Texas. (We gather that most of the firm’s employees did not want to move, so wound up leaving the firm for other roles after receiving extended severance packages. It is also our impression, having talked with various employees of Mithril over the years, that the firm’s economics greatly favor Royan.)
Though churn is certainly cause for concern, the firm, whose two funds both have 12-year investing horizons, seems to be performing. A knowledgeable source says Auris’s acquisition could potentially produce a $950 million windfall for Mithril if it hits certain milestones. Most of that return belongs to the firm’s debut fund, which had closed with $540 million, with a much smaller percentage returned to investors in the second fund, a $740 million vehicle that was closed in early 2017.
Mithril, which is known for making more concentrated bets in fewer companies, owned 15% of Auris when it was snapped up. The firm also has sizable stakes in the intelligence software company Palantir; in Adimab, a New Hampshire-based antibody drug discovery shop; and, in a very recent bet, Glance, which is a subsidiary of the Indian mobile ad business firm InMobi and that announced $45 million in funding last month from Mithril.
As for that reported FBI investigation, we haven’t been able to confirm that there’s anything more to it than an open dialogue between the agency and Mithril, which last month told Recode that such inquiries were the result of a “foiled plot by a self-serving ex-employees.”
Today, at least, it’s much clearer which ex-employee Mithril is looking to blame.
We’re guessing there will be much more to this story soon.