[Federal Register Volume 65, Number 119 (Tuesday, June 20, 2000)]
[Notices]
[Pages 38309-38311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15442]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24496; 812-11998]


meVC Draper Fisher Jurvetson Fund I, Inc.; Notice of Application

June 13, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(c) and 
57(i) of the Investment Company Act of 1940 (the ``Act'') and rule 17d-
1 under the Act.

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APPLICANTS: meVC Draper Fisher Jurvetson Fund I, Inc. (the ``Fund''), 
meVC Advisers, Inc. (``meVC Advisers''), and Draper Fisher Jurvetson 
MeVC Management Co., LLC (``Draper Advisers,'' together with meVC 
Advisers, the ``Advisers'').
SUMMARY OF APPLICATION: Applicants request an order to permit the Fund, 
a business development company (``BDC''), to co-invest with certain 
affiliates in portfolio companies.

FILING DATES: The application was filed on February 25, 2000 and 
amended on May 19, 2000 and June 8, 2000.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on July 10, 2000 and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: meVC Draper Fisher Jurvetson Fund I, Inc. and 
meVC Advisers, Inc. 901 Folsom St., Suite 301, San Francisco, CA 94107; 
and Draper Fisher Jurvetson MeVC Management Co., LLC, 400 Seaport 
Court, Suite 250, Redwood City, CA 94063.

FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Senior Counsel, at 
(202) 942-0553, or Nadya Roytblat, Assistant Director, at (202) 942-
0564 (Office of Investment Company Regulation, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Fund is non-diversified, closed-end management investment 
company that has elected to be regulated as a BDC under the Act.\1\ The 
Fund's investment objective is to achieve long-term capital 
appreciation from venture capital investments in information technology 
companies, primarily in the Internet, e-commerce, telecommunications, 
networking, software and information services industries.
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    \1\ Applicants also request relief for any future BDC that is 
advised by meVC.com, Inc., the parent company of meVC Advisers, or 
by a person controlling, controlled by or under common control with 
meVC.com, Inc. (collectively, ``meVC.com'') and that relies on the 
requested order (a ``Future Fund'' collectively with the Fund, the 
``Funds''). Any Future Fund will comply with the terms and 
conditions of the application.
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    2. meVC Advisers, an investment adviser registered under the 
Investment Advisers Act of 1940 (the ``Advisers Act''), serves as 
investment adviser to the Fund. meVC Advisers, subject to the oversight 
of the Fund's board of directors (``Board''), is responsible for 
implementing the Fund's investment objective and principal strategies, 
setting the Fund's strategic and operational direction and managing all 
aspects of investing the Fund's assets in

[[Page 38310]]

portfolio companies. Certain directors or officers of the Fund also are 
directors, officers or shareholders of meVC Advisers or meVC.com, Inc.
    3. Draper Advisers, a California limited liability corporation, is 
an investment adviser registered under the Advisers Act. It has a 
managing member and 24 non-managing members. The managing member of 
Draper Advisers (the ``Manager'') is also Chairman, Chief Executive 
Officer and a director of the Fund. The non-managing members of Draper 
Advisers currently are (a) general partners, managing members, members, 
shareholders, or members of a principal partner, of the sole general 
partner of, or investment adviser for, a Current Affiliate (defined 
below); (b) managing directors or principals of the managing member of 
a Current Affiliate (defined below); or (c) direct or indirect 
principals of a Current Affiliate (defined below).
    4. meVC Advisers has entered into an Investment Sub-Advisory 
Agreement (the ``Subadvisory Agreement'') with Draper Advisers. Under 
the Subadvisory Agreement, and subject to the oversight and control of 
the Board, Draper Advisers is responsible for: (a) Managing investment 
and reinvestment of the Fund's assets (except that meVC Advisers is 
responsible for temporary investments); (b) reviewing, supervising and 
administering the Fund's investment program; (c) providing or making 
available significant managerial assistance and guidance to the Fund's 
portfolio companies; (d) providing the Fund with required records 
concerning its efforts on behalf of the Fund; and (e) providing regular 
reports to the Board concerning its activities on behalf of the Fund.
    5. One or more members of Draper Advisers created, advised, 
sponsored or otherwise organized several private venture capital funds 
(the ``Current Affiliates'').\2\ Applicants state that the members of 
Draper Advisers intend to form additional private investment funds in 
the future that will have similar structure and investment objectives 
as the Current Affiliates and that will be advised by the Advisers or 
an entity that controls, is controlled by or is under common control 
with the Advisers (the ``Future Affiliates,'' together with the Current 
Affiliates, the ``Affiliates'').\3\ Applicants request relief to permit 
the fund to co-invest with the Affiliates in portfolio companies 
(``Coinvestment Transactions''). None of the Manager, meVC Advisers, 
meVC.com, or the Funds' directors will participate in Coinvestment 
Transactions.
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    \2\ Current Affiliates also includes Draper Advisers and any 
other existing person for whom relief from section 57(a)(4) is 
necessary.
    \3\ Future Affiliates also includes any other person for whom 
relief from section 57(a)(4) is necessary in the future because of 
that person's relationship with the Fund or a Future Fund.
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    6. Applicants anticipate that the non-managing members of Draper 
Advisers will refer to the Manager investment opportunities that are 
presented to the Affiliates. The Manager will independently analyze and 
evaluate these investment opportunities and will select investments for 
consideration by the Fund's directors who are not ``interested 
persons'' as defined under section 2(a)(19) of the Act (the 
``Independent Directors'') after considering the Fund's investment 
objective and strategies, available funds and other pertinent factors 
particular to the Fund, including applicable investment restrictions 
and regulatory requirements. The evaluation and decision making process 
of the Manager will be separate from that of the Affiliates. Applicants 
anticipate that the Fund and the Affiliates frequently may participate 
in Coinvestment Transactions.

Applicant's Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
from participating in a joint transaction with a BDC in contravention 
of rules as prescribed by the Commission. In addition, under section 
57(b)(2) of the Act, (a) the investment adviser of the BDC, (b) any 
persons who are directly or indirectly controlling, controlled by or 
under common control with the BDC and (c) any person who is within the 
meaning of section 2(a)(3)(C) or (D) of the Act, an affiliated person 
of a person specified in (a) or (b) above are subject to section 
57(a)(4). Under section 2(a)(3)(C), an affiliated person of another 
person includes any person directly or indirectly controlling, 
controlled by or under common control with such other person. Under 
section 2(a)(3)(D), an affiliated person of another person includes 
any, officer, director, partner, copartner or employee of such other 
person. Applicants state that the Affiliates may be deemed to be 
affiliated persons of the Fund under section 57(b) and (2) of the Act 
and therefore may be deemed to be subject to section 57(A)(4) with 
respect to any Coinvestment Transaction.
    2. Section 57(i) of the Act provides that, until the Commission 
prescribes rules under section 57(a)(4), the Commission's rules under 
section 17(d) of the Applicable to closed-end investment companies will 
be deemed to apply. Because the Commission has not adopted any rules 
under section 57(a), rule 17d-I applies.
    3. Rule 17d-1, promulgated under section 17(d) of the Act, 
prohibits affiliated persons of an investment company from 
participating in joint transactions with the company unless the 
Commission has granted an order permitting such transactions. In 
passing upon applications under rule 17d-1, the Commission consider 
whether the company's participation in the joint transactions is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants.
    4. Section 6(c) of the Act permits the Commission to exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that the exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    5. Applicants state that the Funds's shareholders will derive 
substantial benefits from the Coinvestment Transactions and the 
investment expertise, contact, access to potential investment 
opportunities, investment oversight, and monitoring and managerial 
assistance capabilities of the members of Draper Advisers. Applicants 
contend that the Coinvestment Transactions who offer the Fund access to 
the substantial deal flow generated by members of Draper Advisers that 
should result in greater diversification of the Fund's portfolio.
    6. Applicants contend that the obligations imposed on the 
Independent Directors under the Act and the conditions to the requested 
order provide significant protection against possible conflicts of 
interest. Applicants also state that the conditions relating to the 
terms on which the acquisition or disposition of investments may be 
made would ensure that the Coinvestment Transactions are consistent 
with the policies underlying the Act and that the Fund would 
participate in the Coinvestment Transactions on a basis no less 
advantageous than any other participant.

Applicant's Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. (a) When considering and investment opportunity that may 
constitute a Coinvestment Transaction, the Manager will review such 
investment opportunity and make an

[[Page 38311]]

independent determination of the appropriateness of the Fund's 
participation in such transaction in light of the Fund's then-current 
circumstances.
    (b) In the event the Manager deems the Fund's participation in such 
investment opportunity to be appropriate for the Fund, he will then 
determine an appropriate level of investment for the Fund. If the 
aggregate amount recommended by the Manager to be invested by the Fund 
in such Coinvestment Transaction, together with the amount proposed to 
be invested by an Affiliate in the same transaction, exceeds the amount 
of the investment opportunity, the amount invested by each party will 
be allocated among them pro rata based on the ratio of the Fund's net 
assets to the aggregate net assets of the Fund and the Affiliate.
    (c) After making the determinations required in (a) and (b) above, 
the Manager will distribute written information concerning the 
Coinvestment Transaction, including the amount proposed to be invested 
by any Affiliate, to the Independent Directors for their consideration. 
The Fund will co-invest with an Affiliate only if a required majority 
of the Independent Directors (as defined in section 57(o) of the 
Investment Company Act) (a ``Required Majority'') concludes, prior to 
the Fund's participation in the Coinvestment, that:
    (i) the terms of the transaction, including the consideration to be 
paid, are reasonable and fair and do not involve overreaching of the 
Fund or its shareholders on the part of any person concerned;
    (ii) the transaction is consistent with the interests of the 
shareholders of the Fund and is consistent with the Fund's investment 
objective and strategies as described in the Fund's registration 
statement and other filings made with the Commission by the Fund under 
the Securities Act of 1933, any reports filed be the Fund with the 
Commission under the Securities Exchange Act of 1934, and the Fund's 
reports to shareholders;
    (iii) the investment by the Affiliate(s) would not disadvantage the 
Fund, and participation by the Fund is not on a basis different from or 
less advantageous than that of such Affiliate(s). In the event that an 
Affiliate, but not the Fund, gains the right to nominate a director for 
election to a portfolio company's board of directors, such event will 
not be interpreted so as to prohibit the Required Majority from 
reaching the conclusions required by this condition 1(c)(iii); provided 
(A) the Required Majority will have the right to ratify the selection 
of such director and (B) Draper Advisers will provide periodic reports 
to the Board with respect to the actions of such director;
    (iv) the proposed investment by the Fund will not benefit the 
Manager, any Affiliate, or any person or entity affiliated with either 
of those persons (other than the participating Affiliate), except to 
the extent permitted under sections 17(e) and 57(k) of the Act.
    (d) The Fund has the right to decline to participate in any 
Coinvestment Transaction or to invest less than the amount proposed to 
the Fund.
    2. Except for follow-on investments made pursuant to condition 5 
below, the Fund will not invest in any portfolio company in which the 
Manager, any Affiliate, or any person controlling, controlled by, or 
under common control with either of those persons, is an existing 
investor in such company.
    3. The Fund will not participate in any Coinvestment Transaction 
unless the terms, conditions, price, class of securities to be 
purchased, settlement date, and registration rights will be the same 
for the Fund and the Affiliate participating in such transaction with 
the Fund. The grant to an Affiliate, but not the Fund, of the right or 
nominate a director for election to a portfolio company's board of 
directors will not violate this condition 3; provided the provisos of 
condition 1(c)(iii)(A) and (B) are complied with.
    4. If an Affiliate elects to sell, exchange or otherwise dispose of 
an interest in a security that was acquired by the Fund and the 
Affiliate in a Coinvestment Transaction made pursuant to condition 1, 
the Manager will notify the Fund of the proposed disposition at the 
earliest practical time and the Fund will have the right to participate 
in such disposition on a proportionate basis, at the same price and on 
the same terms and conditions as those applicable to the Affiliate. The 
Manager will formulate a recommendation as to participation by the Fund 
in any such disposition, and provide a written recommendation to the 
Independent Directors. The Fund will participate in such disposition to 
the extent that a Required Majority determines that it is in the Fund's 
best interests to do so. The Fund and the Affiliate will each bear its 
own expenses in connection with any such disposition.
    5. If any Affiliate desires to make a ``follow-on investment'' 
(i.e., an additional investment in the same entity) in a portfolio 
company whose securities were acquired by the Fund and the Affiliate in 
a Coinvestment Transaction made pursuant to condition 1 or to exercise 
warrants or other rights to purchase securities of the issuer, the 
Manager will notify the Fund of the proposed transaction at the 
earliest practical time. The Manager will formulate a recommendation as 
to the proposed participation, including the amount of the proposed 
follow-on investment, by the Fund and provide the recommendation to the 
Independent Directors. The Independent Directors will make their own 
determination with respect to follow-on investments. To the extent that 
the amount of a follow-on investment opportunity is not based on the 
Fund's and the Affiliate's investments, the relative amount of 
investment by the Affiliate and the Fund will be based on the ratio of 
the Fund's remaining funds available for investment to the aggregate of 
the Fund's and the Affiliate's remaining funds available for 
investment. The Fund will participate in such investment to the extent 
that the Required Majority determines that it is in the fund's best 
interest. The acquisition of follow-on investments as permitted by this 
condition will be subject to the other conditions set forth in the 
application.
    6. The Independent Directors will review not less frequently than 
quarterly all information concerning Coinvestment Transactions made or 
considered to be made during the preceding quarter to determine whether 
the conditions set forth in the application were complied with.
    7. The fund will maintain the records required by section 57(f)(3) 
of the Act as if each of the investments permitted under these 
conditions was approved by the Independent Directors under section 
57(f).
    8. No Independent Director will also be a director, general partner 
or principal, or otherwise affiliated with, any Affiliate. The Funds 
will not have common Independent Directors.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-15442 Filed 6-19-00; 8:45 am]
BILLING CODE 8010-01-M