Mithril founder strikes back at scrutiny over fees, deal flow

Mithril Capital Management co-founder Ajay Royan (Steve Jennings for TechCrunch)
This article is part of our ongoing coverage of TechCrunch Disrupt.

SAN FRANCISCO— Mithril Capital Management, a growth-focused venture firm co-founded by Peter Thiel, for months has weathered a barrage of press scrutiny about its management practices and investing style amid reports that it was facing a federal investigation.

On Thursday, Mithril openly confronted the matter and lodged its own counterattack, declaring that the firm's former general counsel has been spreading "falsehoods" in a bid to undermine Mithril and to promote her own foray into venture investing.

Mithril, which was founded in San Francisco in 2012 but last year announced plans to move to Austin, closed an $850 million second fund in 2017, with Thiel as its largest investor. The firm earlier this year scored its biggest exit to date with the $3.4 billion sale of its surgical robotics portfolio company, Auris Health, to Johnson & Johnson.

In his first public comments on the subject, Mithril co-founder Ajay Royan, a longtime associate of Thiel's, took to the stage at the TechCrunch Disrupt conference to slam his former general counsel, Crystal McKellar, for seeking to sow discord between his firm and its limited partners.

The firm also went to court seeking to block McKellar from what it says has been an ongoing effort to harm Mithril. The firm's suit, filed on Wednesday in Travis County (Texas) District Court, contains a lengthy chronology of McKellar's separation from Mithril in February and the ensuing months during which she allegedly mounted a "concerted whisper campaign" against the firm.

"So the short version is that there [has] been a series of falsehoods both reported about us and conveyed about us in a set of anonymous communications that was sent to various people, our business partners and others in our community," Royan said. "And at some point, this had to stop, and we took the time to gather the facts."

The firm confirmed it has been in discussions with the FBI and the Securities and Exchange Commission. A spokesman for the FBI's San Francisco office declined to comment. Thiel wasn't immediately available to comment on Thursday. Reached after Royan spoke onstage, McKellar said via email that she hasn't seen the lawsuit and that it was only provided to news organizations.

"Based on the media coverage, I can state that the allegations of wrongdoing are unequivocally false, and it will be a simple matter to prove them false if it gets that far," she said. "But this isn't about me. This is about what's going on at Mithril."

McKellar has recently launched her own firm called Anathem Ventures. Its website describes the name as a term from a Neal Stephenson novel "referring to the exile of those intelligent and curious minds who surface new and dangerous truths."

Part of the press scrutiny of Mithril in recent months has centered on purported complaints that the firm improperly collects management fees even as its portfolio investments are relatively few and far between, compared with other funds of its size.

Mithril in some years only makes a few deals. Royan often speaks openly of his sparse deal flow as a badge of honor showing the firm's conviction and careful screening of opportunities.

According to Mithril's court filing, McKellar sent anonymous letters to a business partner purporting to be from an "angry" Mithril LP that accused Royan of lying about how much he was charging in management fees.

Royan asserted on Thursday that he still enjoys the broad support of his LPs and that nobody has approached the firm to make any allegations of impropriety. He maintained that Mithril is sticking to a deliberate approach to sourcing deals even if that means taking years to decide whether to make or pass on investments.

 "When you build a firm, you're building a firm to make good choices over a long period of time," he said. "Every investment that we've made in the last year, for example, the new ones were years of work."