Updated
The details of Silicon Valley photo-sharing company Filmloop’s quick, and strange demise continue to dribble out — and the story carries lessons for the first-time entrepreneur.
Yesterday, we’d referred to an apparent move by venture capital firm ComVentures to take remaining cash and assets from Filmloop, and give them to another of its companies, Fabrik.
We’ve contacted ComVentures for comment, but haven’t heard back (Update: We’ve since heard back; see below). Representatives at Fabrik declined comment yesterday.
Mike, at Techcrunch, has done a good job piecing together the story. The take away: It is a reminder about how quickly things can turn south. Filmloop raised $7 million from ComVentures in May of last year. Nine months later, with $3 million reportedly still in the bank, investors shut it down. We don’t know the full story yet. A couple of venture capitalists have responded to Techcrunch’s story, and their comments suggest this was a case of simple failure by Filmloop. Yet big questions remain. VCs have a lot of discretion about when and how to shut down companies. If they have enough ownership to make these decisions, it is legally their right to do so. However, VC reputations in Silicon Valley can be fragile. Moreover, putting pressure on a company to sell by a certain date, as reportedly happened at Filmloop, can create all kinds of distorted decision-making.
ComVentures, for its part, is reportedly not doing that well. We wrote about the string of departures at the firm.
And is there a pattern developing, of strong support and then cutting and running? Note the example of Firefly Mobile, the company where ComVentues Roland Van Der Meer was on the board of (he was also on the board of Filmloop). In July last year, he is bullish on Firefly, after helping pump in at least $26 million in late 2005. He promised “exciting” news. Then, strangely, three months later, in Oct, Firefly is restarted, and ComVentures has pulled out. And there was Nishan Systems, where certain actions by ComVentures, and Van Der Meer again caused an entrepreneur to lash out and fight back. We reported on that story at length (and the complaint is worth reading; see link above). The entrepreneur reached a settlement, and it marked the beginning of a string of such efforts by other entrepreneurs in Silicon Valley to fight back against investors — something that has been rare until recently. We don’t want to unfairly criticize individual investors, and don’t have all the facts yet. Moreover, they may be facing their own pressure from their own investors, which may be the case at ComVentures.
[Update: We just heard back from Roland Van Der Meer, who has very different side of the story to each of the cases above. First, in FilmLoop's case, another investor first suggested the sale (Van Der Meer didn't say who it was), and ComVentures didn't have a controlling stake. After pursuing three different business strategies, and still failing to get customers, FilmLook's future looked dire. So the decision to sell was made, and the management team participated in that process. They found no buyers. Second, in the Firefly case, Van Der Meer says that company burned through lots of cash, and ComVentures decided it couldn't continue supporting it at that rate. The best thing to do was to get the company restarted, and funded again by other investors, which happened -- so it was favorable outcome, not a bad one, he said. His comment to PaidContent, dated July 2006, pledging "exciting" news, which we linked to above, was made after ComVentures had stepped out, and referred to the company's pending restart, he said. Finally, in the Nishan case, Van Der Meer, who had never returned multiple requests for comments during our reporting of that story, finally gave his side of the story. The details are complex, but he says the firm had carved out 15 percent of the Nishan sales price for common shareholders, which translates into $12 to $13 million. The entrepreneur had wanted $10 million of that, which was too much. He was thrown out of court several times, before there was a settlement that gave $3 million to the entrepeneur, Aamer Latif. Thanks to Roland for being candid with his version of events. We plan to sit down with him further to discuss other issues, regarding the firm's performance, and will update as necessary.]
VentureBeat will try to be a resource going forward on the reputation of firms, and the sorts of pressures they are facing. We have already started this with our VentureBeat People, where we have opened up a comments section for the Midas List of investors. See “Midas List” tab at top of VentureBeat homepage, or see here. We’ll be opening up comments on other investors shortly (we’ll let you know when). This is where you guys can help. If you’ve got any insights on a particular investor, please let us know by adding a comment. Note that Michael Rolnick, of ComVentures, is the Midas List’s #98 investor — so at least Rolnick must be doing something right. Please keep your comments fact-based. They can be critical, but please keep things constructive and civil, so others can learn.
Update II: Alex Haislip of PE Week has followed up on this with a lengthy piece based on interviews with both sides. It suggests FilmLoop’s team had a gun to their head to sell very quickly. Globespan had a greater percentage ownership than ComVentures (which we’ve confirmed), though Filmloop co-founder Prescott Lee says ComVentures led the push — in part because Globespan’s partner responsible for the investment was no longer involved. Here are the notable parts from Haislip on the forced sale:
Tags: co:Filmloop, co:Firefly-Mobile, inv:ComVentues, people:Roland-Van-Der-Meer…Lee says Roland Van der Meer, the ComVentures partner responsible for the deal, met with him at the beginning of November to discuss the redesign. Van der Meer said positive things about it, Lee recalls. Then, at the end of the month, Van der Meer came back to Lee and called for the company to be shut down, Lee says. “He did a complete right turn where he said he wanted to sell the company by the end of the year,” Lee says of Van der Meer. The founders were not pleased with this turn of events. “We thought it was kind of ridiculous to try to sell the company in the month of December,” he says.
Lee immediately cut costs, reducing his staff from 30 full time employees and contractors down to 10. The company could have run for another year, even before the layoff, based on its burn rate at the time and the cash it had on hand at the time, Lee says…Van der Meer was adamant about getting the deal done before the end of the year, Lee says. The rush precluded some potential acquirers from doing the deal and led to a poor valuation of the company, Lee says. “There were a number of interested parties who said they wouldn’t close before the end of the year,” Lee says.
15 Comments
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AS said:
Excellent idea to maintain a VC (firm, partner) reputation/credibility index. It’d serve as a good place for entrepreneurs to source while choosing their investors, board members, etc. all based on prior track record. This is something the Valley sorely needs.
You’d want to check those entering feedback and comments, should they choose to remain anonymous, include factual information involving companies, investors, and how their actions helped or hurt the companies.
ComVentures, Worldview, Crescendo, the partners there and their actions involving portfolio companies (past and current) are good object lessons in “who not to work with, who not to deal with.”
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NishanEmp said:
Matt, Van der Meer’s version of what transpired at Nishan are, as can be expected, quite biased in his and Crescendo’s favor. Now that he returned your call finally, perhaps you want to ask him:
a) what % did the founder and common own before the washouts initiated by Crescendo/Van der Meer?
b) what % did Crescendo own before, and after, the washout round?
c) what % was granted the “CEO” hired to carry out the washouts? what was his affiliation with the investors before the round? how much did he make out for his little time at the company in contrast to the founder, founding employees, and others who spent years at the company?
d) has any confidentiality clauses been violated by Van der Meer now, even if what he disclosed is very biased in his favor? -
NishanEmp said:
Ooops, I meant ComVentures, not Crescendo, in the last posting.
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Valley entrepreneur said:
As an entrepreneur, I empathize with the employees who worked hard and saw their dream fade away. However, investment discipline requires that when the future looks bleak, you cut your losses early. As an employee, it’s better to spend 1year at a dead company than 3years at the same dead company.
The pain of this process, in my view, comes from the asymetry between VC employees(partners) and Company(employees). If the company does well, the VC personally makes as much as a senior exec. If the company folds (as a result of a foul $12M investment), the employees loose their job, struggle to make mortgage payments and daycare payments, while the VC continues to cash his $500K+++ salary. For those slow at math, that’s $20K every 2week, despite having made a stupid $12M investment. So for investors, or “financial intermediaries”, it’s a game of: face we win, tail you loose!
People see and feel this asymetry (or injustice) and feel it’s not fair. Entrepreneurs and VCs aren’t in this game together…unfortunately.
If LPs aligned the interests of intermediaries more appropriately, investment decisions would be more rational, and people (the fodder) would have more stable jobs.
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ANishanExec said:
Van der Meer’s explanation of what occurred at Nishan is, predictably and understandably, entirely self-serving. To cast himself as carving out $15M for the common shareholders and to portray the founder as demanding 80% of that…does he expect of us to say “how generous of you, ComVentures/Van der Meer!” and “how bad of the founder!”???
Matt, fairness demands Nishan’s founder and executives be provided an opportunity to respond to Van der Meer’s characterization of what ensued at Nishan. In their absence lies and fallacies polished many times by the likes of Van der Meer will be passed on as truth. And that’d be a disservice to entrepreneurs and employees and, indirectly, to the limited partners as well. Their response to Van der Meer will reveal how much ComVentures and Van der Meer pocketed out of Nishan, how much they would have made if they didn’t wash out the common (and some preferred) shareholders, how much their crony CEO made for playing the investors tune and how long he stayed at the company to reap that reward in contrast to what the founder and executives, etc. This story needs air time and that will reveal ComVentures/Van der Meer for what they are.
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Clark Dong said:
In the post-bubble years I founded and ran a WiFi startup funded by ComVen (along with 4 other funds in the valley). Roland Van Der Meer was on my board and ComVen with a lead investor. As with many other startups during that period, my company went through some rough times, but I believe it is in those difficult times that we see the true colors of individuals (on both sides of the table). Disclosure: I currently do NOT have a working relationship with ComVen nor with Roland, so I can speak freely and remain unbiased on this topic.
In the 3+ years that I worked with Roland, he remained a nurturing and honest board member. Don’t get me wrong, I didn’t see eye-to-eye with him on many issues and he was every last bit a capitalist who had his fund’s interest at heart. But I felt he did so with lots of integrity and class. As an entrepreneur and CEO, I did not feel that I had to constantly watch my back to keep from being screwed…Starting from term sheet negotiation (we were offered reasonable middle-of-the-road terms) all the way to the decision to ramp down the company (we considered and exhausted all viable options for the time). I still remember after one particularly contentious session during the initial funding term negotiation, Roland told me that “Don’t worry, for the rest we will just treat each other like human beingâ€. He remained true to his words throughout our working relationship.
I don’t know the details at FilmLoop or Firefly. But I do know that it’s much easier to cast judgment from the sideline when we do not have to deal with all the constraints of the situation. Often after we know all the facts, the “right†decision becomes much less clear. When a play goes south it’s tempting to point fingers and grind axes, but speaking from my personal experience, I’m glad I had taken investment from ComVen, and of the many VC’s I know, Roland in particular is a someone I would not hesitate to have in my corner. Contact me (via LinkedIn) if you like to speak with me about this topic.
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Deepak said:
@clarkdog
Dude i would say that please review your mind-set before bringing van-der-meer in your pocket once again :D .. couldn’t you see the one after another debacles .. 1 or 2 are mistakes but if the pattern continues then .. all the best :) -
John Doe said:
That is a good point by DEEPAK, where there is smoke there is fire.
Then again I do look forward to VentureBeat.com update on this story.
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ANishanExec said:
Granted there are high quality VCs that work well together with their portfolio companies and executives and founders. Of course this also means resolving issues always on the up and up.
There are also plenty of venture firms and partners that simply don’t behave that way. There is the Valley equivalent of the “Stockholm syndrome” where the entrepreneurs and executives don’t want to speak candidly, honestly about their venture investors actions and decisions for fear it’d ripple out and affect their future. And it isn’t uncommon for VCs to threaten those executives and entrepreneurs, directly or indirectly, subtly or with force, to affect their future unless they comply. And if they don’t comply, they can always make the next round of financing difficult. And so on.
In that light, Clark’s puff story about Van der Meer is all to understandable and predictable. Expect to see a few like that every time a VC’s track record is laid out for closer inspection. Expect portfolio company executives, esp current portfolio and those seeking funding or about to, to chime up and cast their investors in glowing, sun-drenched light.
Those with burnt fingers have a more credible story to share that we can all learn from. And ComVentures/Van der Meer, Worldview/Orsak, Crescendo/Spreng and their cohorts-in-crime have created enough smoke and train wrecks that entrepreneurs, executives, and importantly their LPs are already taking notice.
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Clark Dong said:
I suppose if one reads my previous comment on ComVen without regards to my current context then one might interpret my post as an entrepreneur version of a video taped confession of me praising my captors with a hooded gunman standing behind my back. So allow me to shed more light on where I am and share my current view on VC’s.
Last fall I started a new web 2.0 company in the team collaboration space. And for this new company I have chosen not to go the VC route. Why? They are asking for way too much (50% off the top) and frankly I can get it going without them (i.e. I don’t need to kiss up to them). The VC model was created from the era of the semiconductor days where an entrepreneur needs millions of dollars of startup capital before they can make a run at it. That is no longer the case. It is now possible to start a play, tighten the belts a little, and reach revenue. The capital equation of the new startup world has changed.
So what is my current view on VC’s? I think they are a dying breed. It is now easier than ever to start companies in the web space. Open source tools and nearly free online services means you can become very productive quickly without needing lots of money to spend on development tools or infrastructre. Hosting services are also next to free, and it will only get more reliable, faster and with more storage. For those venture funds that can not adapt quickly and add more value to entrepreneurs, they will find themselves with lots of money but not able to participate in this new round of web innovation (sure, the semiconductors and the networking plays will still need startup capital). VC served a useful function back-in-the-day, but the clock is ticking for them.
Finally, how I feel about the VC community does not necessarily translate to I how feel about the people in it. There are some rotten apples out there for sure, who are opportunistic and would try to steal your underwear if they catch you in the shower. But based on my past interactions a few years ago, I don’t think Roland Van Der Meer is one of them.
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Sramana Mitra said:
Matt, With the overinvestment in web 2.0, we will see a lot more of this kind of rollups, portfolio shuffling, rebalancing, etc. coming.
Sramana
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Mike said:
Matt, great idea to create a reputation forum for the venture investors. It is about time someone add some transparency to the murky VC community. Entrepreneurs and LPs will both benefit from it. However, instead of using Forbes Midas List as a starter, why not create a forum where the community add VCs to the list. Readers can contribute to VC comment sections, and their fellow readers can rank/score the contributors on the degree of substance,not slander. Those scores, in turn, further add weight to the credibility of their ranking… In the beginning there may be some kinks but I think over time the community will tune it in the right direction, a la web2.0 style. A platform like that will be very important, and you will be doing a huge service to the entrepreneur ecosystem. It will, hopefully, overtime wean out the bad apples in the VC community. The current cash rich environment is making fund rasing way too easy.
Lastly, you gotta be kidding if you think the Midas list has any credibility beyond its #1 and #2 VCs. There is less intelligence in the ranking than Bush’s pre-war Iraq briefing. Dont forget, this is the ranking that actually gave David Spreng the #8 spot in 2005: http://www.crescendoventures.com/david_spreng.html
The same guy who has had zero positive exits in his current fund that was raised in 2000. -
Pankaj said:
Mike, great idea. Such reputation engine would be huge. In these days of freely available information on the web, not much info is available on the VC community except for a few word of mouth comments that are more subjective than objective. Checks and balance must be instituted on the forum to make it useful. There is a site http://www.rateavc.com/ that sort of does this but lacks the peer comment review functionality and ranking that is necessary to make it useful. Matt, you should give a go on this idea. This is a huge idea.
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