Ravikant v. Tolia

I have been thinking a lot about the Ravikant v. Tolia complaint filed January 19. This lawsuit arises out DealTime’s acquisition of Epinions in 2003. In that merger, all of the common stockholders got wiped out (including me). The plaintiffs are some of those common stockholders who feel wronged by the washout merger and would like to share in some of the post-merger success.

This lawsuit has already received some press in the New York Times and the San Jose Mercury News (quoting me). In part this press is attributable to the high expectations that people once had for Epinions and its unexpected rebound from the dot com crash.

While personally I’m fascinated by the legal duties that preferred stock (and a board controlled by the preferred) have to common stock when the company’s valuation is below the preferred stock’s liquidation preference, this lawsuit is getting some attention because venture capitalists rarely sue each other. Here, a couple of VCs (including Naval Ravikant and Kevin Laws) are suing other VCs. In particular, Naval used to work for August Capital but is now suing his old firm and John Johnston, one of his former August partners. The VC world is clubby and driven by personal relationships. Given the prospect of repeated interaction between VCs over a career, most VCs find a way to resolve disputes out of court. Already, Naval and Kevin are feeling some of the consequences from their decision to break ranks.

I will have more to say about this lawsuit as it develops. For now, I have to choose my words carefully because I was company counsel during some of the relevant time periods.