Yueguan

9-806-042

REV: MAY 16, 2008

FELDA HARDYMON

JOSH LERNER

ANN LEAMON

Pawson Foundation: August 2006

Martin Smith, a recently-arrived vice president of the Pawson Foundation, an organization with

substantial investments in top-tier private equity funds, choked on his cappuccino as he read down

through the usually routine industry news on August 12, 2005. New York City baked in the haze

beyond his air-conditioned 72nd story office window; everyone with any sense had started the

weekend early in the Hamptons; and news like this should not break on such a day. Setting his cup

down in the saucer, he read the article on-line yet again, then printed it off and read it a third time.

The words didn’t change. They said:

Mayfield Takes LP Lumps

…

Mayfield, one of the earliest and most prestigious venture capital firms, has lost its luster among the crème

de la crème of limited partners [LPs]. The Sand Hill Road firm is about to close its twelfth fund, but without at

least seven top-tier limited partners who had invested in prior Mayfield funds. What follows has been

independently confirmed with five different sources, who agreed to speak only under the condition that neither

they nor their institutions be identified. What I can share, however, is that the seven dissenting LPs are brand

names – in some cases household names – from the university endowment, private foundation and fund-offunds arenas. Also, I made multiple attempts to speak with Mayfield (and offered to hold the story until the

fund closed, if Mayfield was concerned about SEC reg[ulation]s), but never received a response.

The roots of Mayfield’s problem lie in its eighth and ninth funds, which were closed in 1995 and 1997,

respectively. Each fund featured budget-based management fees, which is an alternative to the status quo of

charging LPs an annual percentage of total committed capital. Budget-based fees require the firm to annually

come up with an itemized expense list, and are...