Hercules slaps The Funded with “Cease and Desist”

November 29, 2007 | Matt Marshall | Comments |

(updated with response from Hercules)
thefunded-cease-snip.jpgHercules Technology, a Silicon Valley debt firm, has sent The Funded, a site that lets CEOs comment on their investors, with a “cease and desist” letter.

The letter cites a posting on The Funded that says Hercules is “horrible” and recommends that other CEOs should “avoid it like the plague.” Hercules misrepresented its investment review process and failed to understand basic math, the commenter continued.

Hercules’ letter to The Funded said the comment violates the California Business and Professions Code, that it’s false and defamatory and constitutes trade libel. Hercules said the comment is causing Hercules “severe and irreparable harm.”

The letter is the first C&D received by The Funded since the site started ruffling the feathers of the venture capital community several months ago — when it first opened up its site for CEOs to comment anonymously. See our coverage of the controversial site here.

We’ve pasted below a copy of the Hercules letter, which was forwarded to us by The Funded.

Adeo Ressi, chief executive of The Funded, told VentureBeat he believes the request by Hercules is itself a violation of the Communications Decency Act.

He said he has had no dealings with Hercules and had nothing to do with the comment, and that the Communications Decency Act protects operators of web sites from liability for remarks made by others in comments.

[Update: Hercules' chief executive Manuel Henriquez responded as follows to our request for comment: "Unfortunately we do not comment on pending legal action or on anonymous disparaging or slanderous posting which chose to hide behind anonymous attribution. We find such actions to be careless and site (sic) should fact check the facts to confirm if there is any evidence to support such claims or at a minimum provide attribution for comment postings."]

Ressi said he’d counsel Hercules to follow the reverse strategy: “I would listen to the criticism, respond and encourage the next batch of CEOs that they work with that have a good experience, and have them post about that, rather than attack the innocent operator that provides a forum for CEOs to provide their views.”

Ressi only two weeks ago unveiled his identity at an event in Palo Alto. Ressi said the legal action was inevitable, now that upset investors had a place to mail their complaints to.

Hercules said it will take legal action if the comment isn’t taken down by the tomorrow. Ressi said he isn’t taking it down, so this should get interesting.

Has The Funded crossed the line? Is the single anonymous review about the firm, expressing mainly opinion and few solid facts, but aggressively negative nonetheless, enough to cause “irreparable” harm? We’re not taking sides, but what do you think?

[Disclosure: VentureBeat has a relationship with The Funded, which includes cross-linking to each other’s sites]

thefunded-cease.jpg

Here’s the full offending comment:

horrible-comment.jpg

Next Story: Q&A with Philip Kaplan on AdBrite’s funding round, and more
Previous Story: The nitty-gritty on Knome: How it works

Bookmark and Share

Tags: ,

Photo of Matt Marshall

About the Author, Matt Marshall

Matt Marshall is editor and CEO of VentureBeat. Follow him on Twitter at @mmarshall, and follow VentureBeat on Twitter at @venturebeat.

  • I've never heard of Hercules, and subsequently have no issue with their firm. This said, I must question why Hercules would take such a harsh stance on feedback. I understand that those entrepreneurs who've been disapointed by their experiences with Hercules would have an axe to grind, but legal action in response causes me to question the honesty of Hercules in this situation.

    Constructive criticism is great - partners at Hercules should remember this from both experience and business school. If not, why object feedback?

    Anyone from Hercules should feel free to comment here. I don't know anyone, any partner. Nor have I had any dealings in any capacity with Hercules. As such, a response is very welcome.
  • Jimmy
    Hercules-
    You're making yourselves look very unprofessional and petty. The cure you seek is worse than the ill you suffer.
  • Nat
    Feedback is not to be taken personally but a point on what every company or individual see you and need to be corrected.Feedback left at the funded are not Ressi responsibility, it's yours (Hercules)responsibility.

    Nat
    www.workersinc.com
  • Naane
    "Unfortunately we do not comment on pending legal action or on anonymous disparaging or slanderous posting which chose to hide behind anonymous attribution. We find such actions to be careless and site should fact check the facts to confirm if there is any evidence to support such claims or at a minimum provide attribution for comment postings."

    Considering he's not commenting, that's quite a lot of commentary. Is Francis Urquhart alive and well and living in Silicon Valley? You might think that, I couldn't possibly comment.

    Did he really say "and site should fact check the facts"? If that's the exact quote it could do with a (sic).
  • I've added (sic). Thanks.
  • Has The Funded crossed “the line”? I doubt it.

    Has the alleged conduct irreparably harmed Hercules? Perhaps, but that's something the company should consider taking up with the author of the comment, not The Funded.

    Based upon the facts reported in this story, I would think that The Funded has a very strong, if not ironclad, defense per 47 U.S.C. 230(c)(1). Hercules didn't help its case when it acknowledged, in the first paragraph of its cease and desist letter, that its grievance is with The Funded’s actions as a publisher. Section 230 forbids treating The Funded as the speaker or publisher of third party submissions. I am not familiar with the California Business and Professions Code or The Funded's Terms and Conditions. But assuming that The Funded had no role in actually writing or posting the subject comment (other than maintaining its website), I would expect a court to dismiss a complaint based upon this alleged wrong fairly quickly, and perhaps sanction counsel for bringing such a case in the first place, given the aforementioned statute and established case law.

    -Michael
  • Guest
    I see this as a wonderful opportunity for a VC firm interested in social media or a law firm looking for start-up business to step in and cover The Funded's legal expenses. Such an action would win huge karma points among the entrepreneur community.
  • The comment could be entirely wrong and slanderous, but Hercules needs to go after the poster- perhaps by subpoenaing Thefunded's IP address records.

    Under the CDA, sites are not liable for third-party comments- at least according to 95% of the courts that have ruled on it.

    And of course, Hercules has just turned a single point of data few are likely to read into a major piece of negative publicity on the firm. Doh.

    They should have just ignored it, or gotten their portfolio companies to bury it with positive reviews.
  • Rookie Move
    Wow, someone at Hercules has lost his mind. The post really wasn't all that specific and I would not have gicen it another thought except that the lawsuit will now make sure that every entrepreneur out there reads it. Nice move rookie. And first ammendment rights along with a pile of legislation allow for pretty much any kind of comment someone wants to leave. The Funded will not lose this case, and Hercules already has. Dumb asses...
  • jon kennedy
    They might pick another fight with venturebeat for "dumb ass" comment above :)

    Their LPs should take away the money for not doing proper job with entrepreneurs. All "me too VCs" out there, behave well it is good for the eco-system.
  • Mike
    United States First Amendment theoretically grants absolute freedom, placing the burden upon the state to demonstrate when (if) a limitation of this freedom is necessary.

    It is losing battle to coverup bad behavior.
  • So how long before the VCs start putting non-disparagement clause with $100k liquidated damages?
  • Steve
    I think it is a bit ironic (and humorous) that the venture community is having such a difficult time with this feedback thing. The rest of the world has been struggling with how to deal with anonymous, inflammatory feedback ratings, merchant ratings, product ratings, blog post commentary, etc... for a couple of years now. Most of these "terrific" new mechanisms for harnessing the "wisdom of crowds" and community commentary were actually created and funded by these same venture capitalists that are now having a difficult time handling the same true/untrue scrutiny, feedback and commentary.

    Yes. This stuff is frustrating. Unfortunately, it is now here to stay. Get used to it. Stop fighting it, and starting managing it...like the rest of us have to do. Isn't Web 2.0 fun? :)

    Steve
  • irralsCralase
    Hello!
    Nice site ;)
    Bye
  • G. Parker
    A bit of advice.

    Eventually, someone will find a reason to criticize your company. It could be an unsatisfied customer, a disgruntled ex-employee, a vendor in dispute, or a stealth critic. The criticism will be less damaging if handled properly. Here are a few tips:

    Do:

    • Continue to monitor the web frequently for damaging criticism and venting. Many companies are oblivious to criticisms/complaints harbored by others. Monitor the web to make sure that the issue has not developed online 'legs'.

    • If you spot damaging complaints/criticisms and have an opportunity to post a comment, by all means, respond. A thoughtful, articulate, response will work far better than a jack-hammer legal threat. Offer to resolve in an amicable manner, the situation giving rise to the complaint.

    • Regularly examine your firm's practices regarding complaints, gripes, and grievances with the goal of diffusing them at the onset. Limit heavy-handed responses, such as threats of legal action, dismissal or termination.

    • Create a mechanism to have dialogue with your company's major stakeholders by establishing risk-free channels for employees, vendors, customers and stockholders to air grievances. One solution might be to set up a secure website or blog where they can speak openly.

    • Invest in protecting your reputation and brand by training your managers/representatives in detecting and addressing complaints/concerns as they arise. Discuss problem areas before they get out of hand. Also, incorporate language into contracts, policy manuals, on your website and in other appropriate forums to address recurring problem areas.

    Things Your Company Should Not Do

    • It is not advisable to simply ignore online venting --- the consequences can be expensive and damaging. Depending on the extent and exposure, online complaints can tarnish the long-deserved reputation that your firm has earned, can cost your company sales, and can ruin your company's brand.

    • Do not make your first response a legal one. Legal actions are expensive and garner even more negative publicity. Also, the courts are relatively unsympathetic to online complaints and criticisms --- even when the complaining party makes inaccurate statements. Many courts interpret these rantings as privileged speech.