TheFunded reveals blacklisted VCs

March 19, 2009 | Anthony Ha | Comments |
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TheFunded, the site that allows entrepreneurs to anonymously review and rate venture capitalists, has released a list of venture firms that are banned from the site’s leaderboards.

What did these firms do to get on TheFunded’s blacklist? Founder Adeo Ressi says there are three possible reasons: Suspicious activity suggesting the firms pressured chief executives in their portfolio to write or review them favorably, threatening a member of TheFunded with legal action, and failing to make new investments. (That final category draws from the list that PEHub’s Daniel Primack has put together of “the walking dead,” namely firms that are still in business but lack the money to invest in new startups.) The site has also added a mechanism allowing members to flag firms for the blacklist.

Let’s be clear here: This is TheFunded’s list, not ours. We don’t have access to the algorithm that Ressi uses (along with member complaints) to find VCs who are trying to “game” the site. But Ressi says he isn’t just throwing names out there — he’s checked and confirmed every complaint that came from a member, and looked into enough cases flagged by the algorithm to be confident that it works. And he showed me comments on the site from entrepreneurs saying they had been pressured to leave positive reviews.

The list is too long for me to contact each of the firms — at least if I wanted to get a post up tonight — but I reached out to a few to get some perspective. David Stern, a partner with Clearstone Venture Partners, said:

You have to take everything in context. Who is more valuable to the community — someone who flames firms and calls other members “shills,” anonymously, without having real context or experience with a firm, or someone who names themselves, makes themselves available to the community, and shares their detailed experiences with the firm, even if asked by a firm to post? Obviously a CEO that is asked to post is not going to say anything negative, but they’re providing valuable information and making themselves available to the community.

Meanwhile, Kate Castle, Flybridge Capital Partners‘ vice president of marketing, said Flybridge had never pressured its CEOs for a favorable review or rating: “We do not know why we would be placed on this list.”

Firms on the blacklist remain in TheFunded’s database; their profiles are flagged with prominent warnings. Those on the list for suspicious reviews will be cleared after 90 to 120 days, firms on the list for not investing can be cleared if they submit proof of an investment in the last four weeks, and those on the list for legal threats are removed from the blacklist 90 days after the last threat or the lawsuit being dropped.

Here’s the list, below the jump:

Suspicious reviews
Alsop Louie Partners
Bay Partners
Benchmark Capital
Clearstone Venture Partners
DFJ Mercury
Flybridge Capital partners
Greenhill SAVP
Kleiner, Perkins, Caufield & Byers
Matrix Partners
Milestone Venture Partners
Partech International
US Venture Partners
VantagePoint Venture Partners

Legal threat
EDF Ventures
GreenHills Ventures
IFC Ventures

Lack of new investments
Appian Venture Partners
ArrowPath Venture Capital
Blueprint Ventures
Centennial Ventures
CenterPoint Venture Partners
Concord Ventures
Crescendo Ventures
Crossbar Capital
Decima Ventures
Diamondhead Ventures
Eurofund LP
Hyperion Israel Venture Partners
InnoCal
Israel Seed Partners
Mercia Technology Seed Fund
Minor Ventures
NeoCarta Ventures
Oxford Bioscience Partners
Sequel Venture Partners
STAR Ventures
Tamar Technology Ventures
Vanguard Venture Partners
Veritas Venture Partners
Vesbridge Partners
Walden Israel
WaldenVC
WorldView Technology Partners
Youniversity Ventures

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About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • Bob Moss and Jim Salter
    I'd like to fill in with relevant context about the discussion around Stewart Alsop of Alsop-Louie Partners. I worked at the company Stewart mentions in his comment (Portola Communications) as the QA manager. I was hired by the founder and later, I was given additional shares by a manager and asked not to discuss or reveal it to that founder.

    Meanwhile I understood the founder was being squeezed (pushed is more accurate) out by some board members and executives (Stewart names most but not all of them). I understood later the founder was the one approached by some companies interested in an acquisition and passed that information to the other executives in the company and ended up with the short end of the stick. Portola employees were given a one-sided and very prejudiced picture that favored the management and investors; once we understood how we were being manipulated and what was real and not, we decided to speak out, together as a group and individually as well, about those investors and managers who attempted to deceive, misrepresent, defraud us. Among those investors were Stewart Alsop and John Shoch and some others.

    If you want a full picture of Stewart Alsop's or John Shoch's business practices before engaging either of them as a business partner in your company talk to those that worked at Portola, have gone on to further success, and can talk about their Portola experience without bias or prejudice favoring the investors or managers.
  • Without naming names, some we're very familiar with, and would agree.

    Cheers

    Sahar Sarid

    Co founder - Recall Media Group Holdings
  • chleoku
    great sharing and useful site for lots of companies trying to score some funds:

    you guys should also take a look at the Asia funding trends if you are thinking about tapping into the fund sources there:

    http://www.wealthalchemist.com/Blog/?s=zero2ipo
  • Let's just say that when you see three reviews about the same firm within a few days of each other, when the average is one review every 3 months, you should be suspicious that someone is trying to game the system.

    I definitely noticed such as behavior for one of the VC firms on the above list. In an era of increased transparency for Wall Street, I expect that good VCs will also benefit from exposure of the bad apples.
  • For VC 2.0 adding transparency is one of the key elements.
  • Sunlight
    About Alsop-Louie Partners: if you are considering them as a venture investor in your company ask Stewart Alsop if he remembers his first investment as a venture investor when he joined NEA in 1996. Ask him how that investment fared and what returns it provided NEA and within what timeframe. Then ask him if the *founder* of that startup would be a reference for Stewart. If he demurs, you know what to do. If he says yes, cross-check that with the Internet on the founder of that company and call him up and ask him what he thinks of having Stewart as an investor, leave alone a partner, in a company.
  • Hi, Satish: Still stewing about what happened with Portola Communications? Since you don't seem to want to provide specifics, I will. I was the Series B lead in a company called Portola Communications in the fall of 1996, my very first venture investment and my first as a newbie investor at NEA. The Series A lead was John Shoch, a veteran investor whom I had known for more than 10 years. The CEO was Greg Stikeleather, who had been recruited by John. And the technical founder was Satish Ramachandran, whom I assume to be "Sunlight" above. The company was sold, about a year after NEA invested, to Netscape. I don't remember the details (and am traveling so can't go find them), but the investment was a positive return for NEA, something like a 4-5x multiple on a relatively small amount of money. Happy to provide details, privately, about Satish's role in that outcome and I'm sure the others would be happy to talk about my role in that outcome as well!
  • Ryan
    "And for only $X, we can protect you from unfortunate blacklistings."
  • Anonymous Coward
    Interesting feedback from readers. I have only worked with the start-ups after they were funded so I can not say for sure what happened behind closed doors. BUT I can say the reality is that many times the "founder(s)" need to step back or out for the investment to return something. I think many of the poor reviews come from founders who were pushed out.

    OTOH, I know of at least 2 founders who dealt with the companies listed above and when they provided "honest feedback" they were notified by legal counsel that they had violated clauses in their buyout packages. So, I have always read the reviews of these VCs with a jaundiced view bc let's face it, if the lawyers are keeping the founders from telling their stories, how can this possibly be a fair assessment??
  • I am happy to answer any questions or concerns about the underlying premise or logic behind the exposing the banned investor list, or 'Blacklist.'

    The primary goal is leaderboard accuracy. The secondary goal is to help entrepreneurs avoid pitching inappropriate funds.

    By (1) exposing the list and by (2) allowing any validated Member of the site to add names to the list, TheFunded aims to add more transparency.
  • Bryan Yamamoto
    To follow up on Stewart Alsop's response earlier: I was an early employee and founding investor in Portola Communications, the company Stewart refers to in his response. I know well the other names he mentions: John Shoch from his Xerox days, Satish Ramachandran when he used to work at Sun, and other employees and investors. I believe I can comment well on what developed at Portola, who contributed what, and on Stewart Alsop's role in the entire outcome. Misrepresentation, fraud, deceit, other such shenanigans to defraud other founding investors and employees were among the tactics used by Shoch and abetted by Alsop and others. By all means feel free to talk to me (and I'll place you in touch with numerous others, Andy Maas and other early employees who were about to be defrauded before they were saved and protected by a founder; they can all vouch for the above).

    The track record proves itself. John Shoch is claimed by Stewart to be a "veteran investor" and he carries himself as such. What companies has he helped that went on to success? contrast that to the numbers that failed. Do the same exercise for Stewart Alsop.
  • Andy Maas
    I wrote the comment early about Portola and Steart Alsop. I'd be happy to talk to anyone about Stewart Alsop, John Shoch, and other names Stewart Alsop mentions in his comment. What happened at Portola needs to be heard by other entrepreneurs that are considering pitching to Mr Shoch, Mr Alsop and other investors that claim to have had a hand in Portola's success. I can also speak for Satish Ramachandran and his role in that success, and how he stood up for the common investors and employees against the VCs named above when they tried to screw us over. I can also place you in contact with many other employees and early investors that can confirm the tactics the VCs and some management used, the lies, the manipulation.
    Andy Maas
  • Any added transparency is almost always helpful. But I'm guessing that being on the "suspicious reviews" list is unlikely to discourage entrepreneurs from pitching to Matrix, Kleiner, Benchmark, USVP, Clearstone, et al. Heck, I'd love to be listed with those firms on just about any list.
  • luckyzhu
    we decided to speak out, together as a group and individually as well, about those investors and managers who attempted to deceive, misrepresent, defraud us. Among those investors were Stewart Alsop and John Shoch and some others.
  • BalaSManian
    I was an investor in Portola Communications. After the sale of that company to Netscape I have been in contact with virtually most of the original team. I had a very good outcome on that investment: 25X in 16 months on my Series A , 4-5X in 6-9 months on my Series B. How can any investor complain and not be grateful to those at Portola who enabled those results?

    Coming to the comments above: all involved with the company know the key driver behind the vision, development of the company (products, customers, team) was the founder and his name is Satish Ramachandran. He delivered above and beyond what he was expected to. I cannot say the same of the others in that company's management. They negotiated outsized equity packages and compensation for themselves--and very much so when contrasted to Satish's--but simply failed to perform or deliver any value to the company. The CEO that was hired had zero experience in the networking industry so beside blustering and name-dropping, he was of no value.
    Two companies that competed with each other ferociously heard of the value and team Satish had built within a year in a segment of the market they considered key to their success. They approached Satish with an interest to a buy-out and Satish, on the board of Portola, brought their interests to the board's attention. In the process of those negotiations we all learned some of the early employees, including Satish, were being shortchanged very badly. Employment contracts gave some of those later employees and managers far greater privileges that were denied those early employees who took and risk and built the company and intellectual property. Needless to say, Satish protested and fought against the inequity. Board members, including John Shoch and Stewart Alsop and others, bribed and granted stock to some of the employees to go against those sidelined all the while representing that they cannot grant any equity to anyone. This came to light, the board was caught engaging in fraud and misrepresentation, and they had to settle with those sidelined employees in a way that was acceptable to them. The deal with Netscape closed producing those returns mentioned earlier which, I repeat, is outsized by any metric. Imagine, some of those investors were trying to squeeze out the few that enabled those results only so those returns can be even more skewed in their favor!
    Portola employees went on to create numerous other successful companies. I have participated, as an investor, in many of them. I know none of those companies presented to Mr Shoch or Mr Alsop, both of whom have moved on from the partnerships they were with when they invested in Portola. I also know of other entrepreneurs that were involved with those two individuals in other companies that since went bankrupt and their experience mirrored what was apparent at Portola.
    Feel free to contact me or anyone from the core team at Portola if you'd like to hear more details.
  • JoshuaG
    I learned at a reunion of early and core Portola employees and investors about this exchange at VentureBeat. Late as I may be I felt I ought to chime in my two cents about my Portola experience.

    I was an investor in Portola's Series A and B. My series A investment produced returns in excess of 40X within 15 months; series B was a 4X in 6 months. As Bala says in an earlier comment, outsized returns by any metric.

    I counseled Satish Ramachandran during his negotiations with his investors when the Netscape deal was on the table. Satish founded Portola, assembled the engineering team, developed the strategy and customer beta sites, and lead the development of the product. He was the company visionary and worked with a passion for the big picture and the details. Needless to say, he trusted those around him in management and on the board would, like him, work to make the pie bigger and more valuable. Unfortunately it didn't work out that way. Employment contracts, set up and negotiated by others in management and without Satish's knowledge or awareness, provided acceleration of stock options upon change-of-control for all employees, including full acceleration for "executives" hired just a few weeks before the acquisition, while the founder and a couple early employees had no acceleration, no change-of-control privileges, etc.

    Put another way, it meant that employees, including those hired after financing and beta sites and products were in place, had favorable employment terms given them. Those same terms, leave alone more favorable ones, were denied the founder and some early employees (who worked hard to ensure everything was in place). Worse, the founder and early employees were told everybody was on the same boat and had the same employment contracts when it was completely the reverse: later employees went first class whereas those that built value were sent economy. It transpired later that some of those later employees, "executives", were cronies of the investors and it was one huge you-scratch-my-back-and-I-your's setup. Crony capitalism is a better description of what those investors, John Shoch and Stewart Alsop, and executives engaged in. How could anyone with an ounce of self-respect find that acceptable?

    With my counsel and that of an attorney I recommended Satish stood his ground and asserted his rights and rightly brought about a resolution that was more equitable. The investors, John Shoch and Stewart Alsop, engaged in further misrepresentation and outright fraud and were caught with the proverbial smoking gun. Corporate counsel (my industry colleague Jim Koshland, then at Gray Cary if I remember right) advised they settle before their own partnerships are at risk and so they did.

    Amazing! after all these years and distance one would have thought credit would be given where it's due (to Satish and his early Portola engineers). Instead we see malice and bitterness from those who patently profited. If anything, anyone contemplating choosing Stewart Alsop or John Shoch as their venture partner ought to hear out the Portola story in full and make up their own mind. An experience with them is likely to leave one, as Stewart Alsop reveals in his comment, "stewing over."
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