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.

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