photo_team_wei.jpeWe’ve posted quite a bit recently here and here about CalPERS’ decision to disclose the fees it pays to the managers of venture capital funds it invests in. However, here’s a cautionary note about how fees can be misunderstood by the public.

We randomly chose to pick on somebody today about this fee issue, so we interrogated James Wei (pictured at left), partner at Worldview Technology Partners in Palo Alto, over lunch. It helps that his office is just a couple of blocks away. Wei said the public shouldn’t look at the dollar amount of the fees and assume they’re used for pocket money, or playing golf. Sure, some partners may do just that, he said. But at Worldview, Wei says he spends 40 percent of fees on global services to help their start-ups grow more quickly, both here and in places like Japan and China.

In 2002 and 2003, CalPERS paid Worldview’s Fund IV more than $300,000 in fees, while CalPERS got no profits in return, according to documents released today. Pretty lousy, right?

Well, not really — we just don’t know yet how it’s going to do. Fund IV, raised in 2000, is still a relatively young fund. Worldview has pumped money from it into dozens of start-ups, some of which are only now beginning to bear fruit. Take Stretch, the Worldview-backed semiconductor company that has been getting good reviews. It’s a young, but fast-growing company, incubated at Worldview’s offices, and helped by the firm’s partners in Japan and elsewhere, who helped set up meetings with prospective customers like Sony, Panasonic and NEC. As Wei explains it, that’s a good example of fees being put to work, but where the start-up hasn’t gotten to a point where it can be sold or go public to generate a return. As so, typically, over a fund’s ten-year life, fees will decline each year, while money returned to CalPERS should generally grow.