Venture Capital and Frayed Connections

Jim Kerstetter reported last week at The New York Times Online that, “They say venture capital is a business of connections, of knowing the entrepreneurs with good ideas, the executives who can help those ideas along, and surrounding those people with whatever support they need.

“At least, that’s the idea. The downside of all those personal connections is that when things go wrong, they go very wrong.”

The article noted that, “As we glorify or villify venture capitalists, we often forget that they are usually playing with other people’s money. So when they mess up, it’s usually at someone else’s expense. At Xfund, investors had to come up with a way to salvage the fund. In other words, find a way to make sure their money wasn’t flushed down the drain.”

Times writer Katie Benner explained that, “Xfund, a venture capital firm formed in 2011 as technology start-ups boomed, began coming undone last year when the relationship between its two partners soured.

“The two venture capitalists, Patrick Chung and Hugo Van Vuuren, argued over the dismissal of an employee and who controlled the firm. The disagreements festered, setting off a chain of events including accusations of abuse, a restraining order application, revelations that a hidden camera was used to record an investor meeting, and an investigation by the fund’s investors.

“Now the firm, which manages more than $100 million and has put money into start-ups like the genetics company 23andMe, is in salvage mode.”

Ms Benner noted that, “The contretemps offer a glimpse into the opaque world of venture capital, where partnerships are easy to form but are very hard to untangle.”

This entry was posted in General Interest, Start-up Company Law. Bookmark the permalink. Both comments and trackbacks are currently closed.