VentureBeat

Just ten days after two co-founders of San Francisco pricing software company Rapt sued its venture backers, the case has been settled.

We thought it would be quick (see our original story here), because high-profile venture firm Accel Partners, and another valley firm, Levensohn Venture Partners, likely wanted to get it over with. But terms of the settlement were undisclosed, according to PE Week, which covered the suit and first reported the settlement Friday.

The two co-founders Adam Galper and Paul Dagum had sued for breach of fiduciary duty and fraud.

Updated

SolarCity, a new Silicon Valley start-up wants to be the Swiss arms-dealer of the solar industry, and has just raised $10 million to do it.

It wants to provide solar installation for individuals and small companies — by acting as an honest, neutral broker, and giving them the best, most affordable technology available.

SolarCity, of Foster City, is the latest start-up backed by serial entrepreneur and former PayPal co-founder, Elon Musk. Musk, who recently led an investment in the all-electricity car Tesla Motors, also in Silicon Valley, has led a $10 million investment in SolarCity. Musk put in about $9 million, and the rest was provided by several other individuals, including his cousins Lyndon and Peter Rive, who are running the company. Lyndon is chief executive, Peter is chief operating officer.

Peter and Lyndon told VentureBeat that the idea is to build a nationally recognized, trusted brand that can leverage economies of scale. There is no such branded company, they said. They want to make installation as easy as taking out a lease on a car. If you take out financing to install your solar roof, for example, there’s a good chance your monthly payment may be less than your existing electricity bills, they said.

Recent legislation, they explained, makes it possible to feed any excess power you generate back into the main grid, which has further helped investing in a solar installation a financial decision, rather than purely environmental. During the day, when you are at work and your roof is generating electricity, you may sell electricity at peak rates for 30 cents per kilowatt hour, while at night, when you consume electricity, you may pay a cheaper ten cents per kilowatt hour, they explained.

SolarCity will focus on consumers and small and medium businesses, they said.

There are a few competitors, including locally, for example Akeena and Borrego. But neither of those are great names to market as solar brands. Borrego means “silly sheep” in Spanish, for example. “Akeena is one of the bigger players in the solar industry, but when put in perspective, they’re a relative small company,” added Lyndon. “There’s ample opportunity to establish a nationwide brand.”

VentureBeat talked with Akeena’s Barry Cinnamon several months ago, when he took his company public on the bulletin board, which Cinnamon said made sense for a small company his size — as way to get cash to expand. However, SolarCity’s Peter Rive expressed surprise at Akeena’s decision to give up the luxuries of being privately held so soon. Akeena raised $2 million, gave up 40 percent of the company in the process, and paid $500,000 in legal fees, according to published documents.

SolarCity is also engaging in research and development — to make things as simple as possible for building owners, with the goal of making installation as straight-forward as installing a satelite dish, the two executives said. They’ve hired engineers for that research. The team is now 16 strong, but numbers 30 when contractors are included.

Elon Musk is also chairman and chief executive of Space Exploration in southern California. Lyndon, too, is a serial entrepreneur, having built and sold a company in his native South Africa, and then founded a company called EverDream, with Musk’s backing.

The company is also looking to purchase companies to help it expand. It already has made two acquisitions, and plans more — the company is thus generating revenue. “A big part of the strategy is to do a national rollup,” said Lyndon.

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.