Rapt co-founders sue Accel & Levensohn for playing hardball

Two co-founders of Rapt have sued the company’s chief executive and venture capital backers, Accel Partners and Levensohn Venture Partners for breach of fiduciary duty and fraud.

Rapt is a San Francisco company that provides software to help companies find the right price for their goods to maximize profits.

It is another one of those stories we are getting familiar with in the valley — where start-up founders get washed out of their ownership holdings, while venture firms bolster their stake at more favorable terms. The case is similar to those of Epinions, Nishan Systems and Wine.com before it (you can search for stories about these cases here at VentureBeat). Rapt raised money during the boom times, but then struggled through hardships — and when the company was forced to raise more money, it did so in a way that pissed off guys who put in early sweat labor.

We’d heard about the suit a few days ago, but hadn’t gotten very far in confirming it. Now the team over at PE Week have gotten a copy of the complaint and spilled all the details. We’ve emailed Accel’s Jim Breyer again, and called Rapt, but nothing back so far.

Dan Primack of PE Wire has done a good job in summarizing it, so we won’t repeat it all here. We agree with his assessment that it is unlikely to go to trial. This is something that venture firms don’t like doing, because it can hurt their reputation as an entrepreneur friendly firm. At least in the Nishan and Epinions cases, settlements were reached. The Wine.com case rages on, however, that one concerns an East Coast firm, Baker capital, which presumably is less concerned about its reputation among entrepreneurs out here (it has also tended to invest in later stage companies). Regardless of the merits of all these suits, the cases are significant because entrepreneurs have until recently avoided suing VCs — once perceived a powerful clique that could gang together and blacklist a noisy entrepreneur.

There is also one other anecdote worth mentioning, since the two co-founders are blaming a third, Tom Chavez, who is now chief executive for effectively changing the rules of the game on them. Chavez not long ago became known for his Rapt presentation called: “It’s a whole new ballgame, and the winners are changing the rules,” adorned with pictures and references from Michael Lewis’ best-selling book, MoneyBall. Don’t mean for this to be a cheap shot; it’s just that he was giving this presentation around the same time the firm was negotiating its 2005 round of capital — the one where the two co-founders say shareholders weren’t solicited for their input on what would become a massive dilution of their shares.