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The real story behind VSP Capital

Remember the saga at VSP Capital, the San Francisco firm run by Joanna Rees-Gallanter? Where we refused to divulge the full details? Well, we can now reveal it all. We'll simply link to what has now become public information, since it is relevant for all the start-ups that VSP invested in, and for at least some investors. It might also serve as an important lesson for others.

Dan Primack has the scoop. We can only reiterate ourselves what he says, as far as reasons for why we didn't mention any of this earlier. So we point to his words, as they are a good summary:

Ever since this saga began in May, readers have asked the following question: "You keep telling us that people have left and that LPs have disbanded funds, but you never tell us why it happened." This is a valid criticism of both me and my colleague Constance Loizos (who originally broke the story, and who has written about the countersuit here) -- particularly given that we've known the reason.

Our only excuse is that neither we -- nor our editors -- have felt comfortable reporting "the reason" without first having someone state it on the record (i.e., for attribution). It's one thing to use background sources to discuss management fee disputes or fund-raising efforts, but this is quite another animal. Now that the countersuit has been filed in San Francisco Superior Court, however, it's time to provide you, dear readers, with the explanation to which you're entitled...

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Tracked: October 10, 2005 11:16 AM


Well, I read the article you reference myself and they noted "each side is claiming that the other side caused the collapse". That is no surprise. That the sex card was played was also no surprise, Matt. Anyone who's been around the VC crowd eventually hears about affairs, cheating on spouses, and the ugly divorce. Power is an aphrodisiac, and VCs love power, even more than money.

What bothers me about your headline is that this isn't the "real" story. Claims and cross-claims are often lurid, as a means to present negotiating room. Often the elements presented are legally irrelevent to the case and eventual judgement. But it also serves to blacken reputations and distract from the meat of the issue - whether there was improper disclosure and dealing by any / all of the partners. It's a contract dispute, and that's what really matters.

On a related note, what is more disturbing is the implication that VCs will not invest in women married to men with related businesses, to wit the "...belief that several institutional investors had investment practices and policies prohibiting them from investing in venture capital funds that are managed by members having personal relationships, such as spouses or siblings". I find this supposed policy an interesting form of discrimination which ultimately serves to undermine a firm. The most important aspect of a deal is trust and disclosure. Partners in a relationship, whether gay or straight, married or unmarried, should be able to disclose this fact without penalty so that a suitable contract can be drawn which deals with dissolution, as you would do with any partnership.

There are a lot of pressures on men and women in Silicon Valley to act in certain unethical ways. Open outright disclosure, non-discriminatory policies encouraging honesty and disclosure, and good contracts are the best protection from the follies of individual men and women.

Lynne Greer Jolitz
Chief Technology Officer
ExecProducer / CoolClip Networks

Lynne Jolitz on October 6, 2005 12:46 PM
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Good points, and I agree. Regarding the headline, what I meant by that is 'here is the one part of the story that was happening all this time, and that was driving it, and which we hadn't been willing to talk about thus far.' In other words, here is one of the key issues that was 'really' behind it all. It is true that the facts about what 'really' happened are being disputed.

Matt Marshall on October 7, 2005 8:50 AM
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