Zantaz, an email archiving software firm, saw a $375 million happy ending this week, when it was purchased by Autonomy, a company that gives major companies a search engine for their Web sites. The details are here.
However, Zantaz, of Pleasanton, Calif. has one of those depressing Silicon Valley back-stories too, where despite the founder’s hard work, he ends up with almost nothing. It includes ComVentures, a valley venture capital firm which has somehow managed to get in a legal or strategic standoff with a surprising number of entrepreneurs over the years.
Some early investors and shareholders are not at all happy about the sale, because their ownership stakes were significantly watered down by what they say were aggressive tactics led by ComVentures. The reportedly terminally ill founder, William Bankert, will end up with only $650,000 or so from the sale. Former lawyer for the company, Gerry Niesar, has been fighting since 2004, accusing the company’s board of directors, including ComVentures partner Roland van der Meer, of rigging a fifth round of funding in 2002 to dilute common stockholders (including Niesar). According to Niesar, the board waited to take additional funding until the company was nearly out of cash: This led to a lower valuation and dilution of early stockholders like himself when the round closed that August. In fact, Bankert sold some of his stake in 2001, based on his allegedly misled understanding of the company’s future.
As usual in these sorts of cases, the details are complex. For the curious, here are just a few of the documents.
1. Series E dilution from 2002 financials
2. Memo comparing early 2000 with early 2002
3. Gary’s notes
4. Memo to Zantaz litigation committee
5. Gerry’s declaration
6. Ralph Mele Email
7.Declaration given June 2005
Comventures partner Roland van der Meer was named as one of the defendants. We’ve requested for comment from Van der Meer and will update accordingly. The issue has yet to be resolved in court, but Niesar now tells us he and others are considering filing a class action suit against the directors, now that the Autonomy purchase has gone through.
Incidentally, Zantaz has lately been doing well because of the legal system. In the fall of 2002, it caught a wave it is still riding today. The US government passed the Sarbanes-Oxley act requiring, among other things, public companies to keep better records of information such as employee email. Although Zantaz was founded in 1996, it first broke even around this time. It continues to be in demand: US federal rules of civil procedure also require companies to track their archived information closely, and recently shortened one filing deadline for companies to 90 days.
Zantaz customers include nine of the world’s top 10 law firms as well as JPMorgan, Deutsche Bank, Philip Morris and BAE. The company $100m in revenues and broke even last year.
6 Comments
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OnComVentures said:
I was an executive at several companies funded by ComVentures and Worldview and remain unsurprised at the way things turned out at Zantaz.
Entrepreneurs would do well to explore every other firms/investors as their financial partners in building their company before considering certain venture firms and partners named below. There is enough hard work in building a company and you don’t want crises, especially ones that are artificially inflated or even created, to be used against you to wipe out you and other shareholders, esp those that took the risk and put in the early hard work.
ComVentures/van der Meer, Crescendo/Spreng, Worldview/Orsak and Wei have similar operating approaches as reflected in the cases of Zantaz, Nishan, Force 10 and other Worldview deals.
For every Zantaz shareholder, I’d encourage you to join in the suit against the Zantaz directors as that’s the only way you’d get some money for the value you built. Go, Mr Niesar, and go Zantaz shareholders, rage against the ComVentures and their kind.
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Sunny Kalara said:
Talk about dirty laundry!
Well, things WERE different in 2002 then they were in 2000 and as they are in 2007. Look at the upticks and down rounds of deals done in 2002 and compare it with the deal here - looks pretty normal.
Also the founder here seems to have sold a part of his holdings “for living expenses and to finance another venture”. Presumably the other ventures didn’t pan out and this one did. He spread his risks and guess what, when you “diversify” your returns get lower.
I don’t know any of these people, except to sympathize and empathize with them because I have been there.
I kid that I have been on all six sides of the table; as a founder, as an investor, as the lead negotiator, as the counsel to previous investors, as a representative of the employees and as the due diligence lawyer facilitating the process. I wouldn’t say that I have seen it all, but I have seen enough.I did snicker at ComVentures, when Sequoia sued them for copying their website - that was so funny! Hopefully with extra $375M (minus .6M for the founder) they can hire a good web designer.
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Charles said:
Some interesting stuff, least they got their payday
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Bob said:
This what happens when you deal with second tier vcs who will do anything when they are desperate as comm ventures is now.
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7 Trackbacks
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[...] VentureBeat: ComVentures’ partner Roland van der Meer is one of the many defendants in a lawsuit filed by [...]
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Entrepreneurs Beware ComVentures said:
[...] sad story involving Comventures popped up today, this time involving Zantaz (no, not the antacid Zantac). Long story short, although the now ill founder, William Bankert, [...]
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Jackson Fish Market said:
[...] “Niesar, has been fighting since 2004, accusing the company’s board of directors, including … Posted on July 6th, 2007 in Interesting [...]
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Bronte Media » Venture Valuations said:
[...] If you raise smaller amounts of capital, at smaller valuations and with smaller required exit multiples, you leave a lot more scenarios open for the future (obviously at the expense of dilution). Like if your company is acquired for $375 million and you end up with $650,000. [...]
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socialwrite.com said:
[...] which one group of investors is willing to sell it.” - Wow: 7 Lessons from Zantaz firesale, More here [...]
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Benjamin Kuo’s Blog » Blog Archive » Employees and Stock Options: not so rosy? said:
[...] see much from their stock options. This comes on top of several widely publicized sales where even the founders walked away with almost nothing. I’ve also recently been hearing from people in the private wealth business, who tell me that [...]
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Planning for IPO, Mimosa raises another $17M for electronic archiving » VentureBeat said:
[...] The kind of comprehensive archiving that Mimosa offers is necessary for the “eDiscovery” process — namely, the process of searching through a company’s electronic records. With the growing number of legal requirements for corporate record-keeping, including the Sarbanes-Oxley Act, there’s been a lot of money entering this field. Last June, for example, Automatic acquired market leader Zantaz for $375 million (although the startup’s founder and early investors didn’t see much of a payoff). [...]