Peter Kafka

Recent Posts by Peter Kafka

Why Betaworks Broke Up the Band

Inside baseball for people who pay attention to early round start-up investing and/or the clubby New York tech scene: Andy Weissman, one of the co-founders of the Betaworks holding company/incubator/startup-maker, is leaving for Union Square Ventures, the high-profile VC firm.

Here’s USV principal’s Fred Wilson’s comment, via email: “Union Square Ventures is very fortunate to be able to add Andy Weissman to our partnership and we think he is a perfect fit for the entrepreneurs we want to work with and the sectors we want to participate in.” (More below.)

That will cause a small ripple in startupland, because Weissman was the one steering Betaworks’ investment portfolio. His partner John Borthwick handled the operational parts of the business, which has founded and/or nurtured startups like Summize, TweetDeck, Chartbeat and Bitly.

With Weissman’s departure, Betaworks’s focus will change. “Though we will continue to do seed stage investments, our primary focus will be on building the core capabilities of the companies that we acquire and grow in-house,” Borthwick said told his employees via email today. Betabeat first reported the news.

What Borthwick didn’t explain in his email is that he and Weissman had previously planned on raising a “sidecar fund” that would essentially split Betaworks into two businesses: An operating company run by Borthwick and an early-stage VC shop run by Weissman.

But that plan was discarded this summer, at least in part because of opposition from Betaworks’ investors, who include RRE Ventures, Intel, AOL and the New York Times. Investors argued that they had put money into a company where investing was only a component of the plan, not a full-time occupation; by raising a new investment fund, they argued, Betaworks would essentially be competing against some of its backers.

People familiar with the company say that the plan’s collapse didn’t lead directly to Weissman’s departure. But the backstory does provide context to his move to become a full-time venture capitalist.

When Weissman lands at Union Square, he’ll have plenty of money to work with. The firm, which has made a series of lucrative bets in high-profile Web 2.0 start-ups including Twitter, Zynga, Foursquare and Tumblr, is in the midst of raising a new $150-$200 million fund.

Four-year-old Betaworks, which now has more than 80 employees, ought to have plenty of money to work with, too. In addition to the $28 million it has raised to date, the company has also been able to turn some of its investments into cash via secondary market sales.

Most notably, it has recently sold Twitter shares it acquired in 2008, when the company bought search engine Summize. That alone should provide a nice cushion for Betaworks if it needs it: Twitter’s value has shot up from $100 million to $8.4 billion over the last three years.

And speaking of ripples, here’s one I’m guessing Weissman may enjoy:

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