Nirav Tolia, of Epinions fame, is back — joins Benchmark as EIR

Nirav Tolia, who led one of the darling and prescient Web sites of the last boom, Epinions, but then who fell into controversy, and then disgrace, is back in the game.

He has joined Silicon Valley venture capital firm Benchmark Capital as an “Entrepreneur in Residence,” a position that lets him work at Benchmark’s offices, sit in on company pitches and search for his next idea.

There, Tolia will join an impressive roster of other Benchmark EIRs, including former Google employees, Bret Taylor and Jim Norris (see our coverage), Mike Cassidy (our coverage) and Dave Goldberg (our coverage). Tolia brings with him Sarah Leary (below), an early employee at Epinions. She will also be an EIR.

Tolia is controversial because he embodied the Internet go-go days, as a dashing entrepreneur in his early 20s — reflecting its promise, but also its tendency toward hubris. He led one of the hottest companies around: Epinions let users submit reviews of goods and products. The company was years ahead of its time. It was an early pathbreaker in harnessing user-generated content, something that only recently has become all the rage. The trend is behind YouTube $1.6 billion acquisition by Google, and the huge buzz surrounding Facebook.

Epinions, of course, launched in 1999, and tumbled badly like the rest of Internet companies after the online advertising bubble burst in 2000. Tolia, however, didn’t let it go out of business. Rather, he deftly managed the company through the desert-like downturn. With online advertising dried up, Tolia shifted the business to comparison shopping, to earn cash. However, it found itself against established competitors. So he first merged the company with DealTime. That company became Shopping.com, went public in 2004, and then was sold to eBay in the summer of 2005 for $620 million. By all accounts, it was a post-Bubble success story. Benchmark, an early backer of Epinions, made more than five times its money on the investment, not bad given the stark cycle Epinions had gone through.

But Tolia was also caught lying on his resume. Google had considered buying Epinions, but some reports suggested it canceled the deal after discovering Tolia had falsely claimed he’d been employed as a consultant with McKinsey & Co. He also wrongly stated he’d graduated from Stanford University. Tolia was forced to resign from Shopping.com. The mistake was another reason eBay settled a lawsuit filed by early founders at Epinions claiming firms conspired with fellow founder Nirav Tolia to deprive them and other employees of nearly $40 million after the acquisition.

Smarting from the controversy, Tolia moved to New York where he had friends and lay low. He and firms Benchmark and August have steadfastly declined to comment on the case.

However, earlier this week, Tolia and Benchmark talked with VentureBeat for the first time about the lawsuit, and gave their side of the story.

Tolia admits to falsifying his resume, and says it was “a dumb mistake.” He’s making no excuses. The hard part, though, was how the mistake “bled into the company and affected the people I really cared about, that really hurt me.” He’s spent three years, reflecting and rejuvenating. In fact, he’s already been noodling for some time, advising start-ups such as SimplyHired and Zillow.

Benchmark’s Gurley, when asked about why he’s backing Tolia again, says Tolia is a phenomenal entrepreneur, who really understands the user-generated content business. He says he’s seen both the good and the bad of Tolia, having been in the trenches with him through the five-year Epinions saga. Tolia never complained, Gurley said, but held steady, making hard decisions (managing two big layoffs, slashing the workforce to 28 from 120) to keep the company alive. The company fought through one of the “ugliest cap tables you’ve ever seen,” Gurley says, referring to the $47M in liquidation preferences it faced, and the $110M faced by DealTime. These preferences guaranteed investors the lion’s share of any sale, leaving nothing to employees — a potential source of demoralization. Gurley recognizes Tolia lied early on with his resume, but that strengths outweigh the negatives of Tolia’s record. “We spent a ton of time in the bunker with this guy,” Gurley says. “You learn a lot about someone in tough times.”

[Update: The accounts shed new light on the lawsuit filed against Tolia, Shopping.com and eBay by former founders and employees. That lawsuit claimed Tolia and the company had tricked them into giving up their shares, and thus cheated them out of $40M in wins that later came from eBay’s acquisition. But the depths of Epinions’ lows were such that many employees thought the company’s stock worthless. When Epinions merged with DealTime, 87 percent of the common stock holders voted for it. Had the merger not gone through, and the market not turned around, eBay may never have bought the company. For the founders to come back and sue years later, saying they were cheated, well, it does smack a bit disingenuous. Now, it turns, out the case was settled by eBay largely because Tolia’s resume screw-up had colored things so much, says Gurley. Gurley was a defendant in the lawsuit, and so should know.]

Tolia and his partner Leary do not have any set mandate as EIRs, but are expected to start their own company at some point (they are not a couple, by the way, something you might ask because they tag around so much together; they’ve just been through a lot with the Epinions saga, and consider themselves a team).

Ironically, Tolia has been sitting on the sidelines for the last few years, just as the user-generated industry has come in to its own. Talking with him, its clear he’s ready to dive in again, with a lot more experience and wisdom under his belt – and a degree of humility you wouldn’t expect had you read the history about this guy: The New York Times in mid-1999 wrote about Epinions as the “Instant company.” It launched in 12 weeks, and raised $8 million from Benchmark and August with little more than a Powerpoint presentation.