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Epinions settlement a black eye to VCs?


Remember the Epinions suit? Well, it has been settled, and some are saying it is a precedent of sorts because it forced venture capitalists to make a payment to founders who cried foul after their company was sold.

We first blogged about the case here. To summarize, three of Epinions' five founders and other employees filed suit earlier this year in San Francisco Superior Court against Silicon Valley venture capital firms Benchmark Capital and August Capital, alleging the firms conspired with fellow founder Nirav Tolia to deprive them and other employees of nearly $40 million (download complaint).

Half way through the case, we'd heard that one of the founders was getting roughed up elsewhere by the tight ranks of the Silicon Valley...

VC community: Naval Ravikant was booted from the VC firm, Dot Edu Ventures.

(UPDATE: After talking with Naval and Dot Edu folks several times, we're convinced we got this wrong. Naval was never a partner or even employed by Dot Edu. He was helping out for a time, in part to help raise a new fund for them, but was deciding to depart at around the time the Epinions suit was filed. When the suit came up, he disclosed it to the Dot Edu folks, and said he thought it was a good time to leave. Dot Edu folks confirmed this.)

Well, now things seem a little brighter for the founders and other employees who sued. Fifty-one former employees settled for a payment, the exact amount of which remains undisclosed.

Dow Jones (sub required) reports the case could serve as an admonition to the venture community, and quotes a lawyer saying this could open the way for future cases. This is good stuff, given that most entrepreneurs have been wary of acting against VCs, who might use their clout to encourage other VCs not to fund the entrepreneur's next company. However, the details of this case are pretty complex, and there are different points of view.

Take the point of TechDirt's Mike Masnick, whose subtle analyses are always refreshing:

The shareholders who sold out turned around and sued their investors, claiming that they were tricked into giving up their shares. Of course, what was most amusing was that for all the stories about how "experienced" the founders of this startup were, none were apparently so experienced to understand that such deals are a part of Valley life. If they didn't give up their shares, then the financing might not have occurred, and the deal with Google (at the time) certainly wasn't obviously as big a deal then as it was now in retrospect. They agreed to give up their shares -- which, in part, helped the company get to the stage where it could be acquired. By suing, and now getting money out of it, they're opening up the doors to more lawsuits of this nature, where investors who sell out get to come back later for their "share" if a company turns itself around.

The last line is a good point. However, we also add that the Google deal might well have been a big deal at the time for a struggling company.

Anyway, any curse Naval Ravikant's may have suffered within the VC community has apparently evaporated: As Dow Jones notes, in April, he raised venture capital for his new start-up, Omni-Explorer Technologies.

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