There is a lot of talk about being pro-entrepreneur. First Round and NEA show serious action
August Capital's David Hornik said it best on Twitter:
A post by First Round's Josh Kopelman is rippling around the startup community right now. It's a stunning tale of how Best Buy completely screwed over First Round's portfolio company, TechForward. Even after the board sold TechForward's assets to a third party, NEA and First Round made the uncommon decision to continue with the lawsuit on its behalf, absorbing hundreds of thousands of dollars in legal fees over a long 18 months.
Now, you could argue that those hundreds of thousands of dollars used for litigation could have been better used to fund a company, and I'm sure the two debated the risk-reward during the process. But effectively, First Round and NEA's cash was a downpayment on protecting venture-funded startups everywhere.
The message is loud and clear to big companies: Fuck with our portfolio companies and you fuck with us. And we don't like to be fucked with.
Here's a snippet of the post:
This wasn’t an easy decision. We are in the business of funding companies – not lawsuits. But my partner, Howard Morgan, was a board member of Techforward – and he sat in those board meetings. And Howard was convinced that Best Buy shouldn’t get away with their behavior. We needed to send a message to Best Buy – and every other large company – that they can’t blatantly violate agreements and steal ideas from startups. And if big companies believe they can violate agreements with immunity because a startup can’t afford to sue them, it is bad news for every startup in the ecosystem.
Today Howard is smiling. Because after 18 months in court, a nine-person jury found Best Buy liable for misappropriation of TechForward’s trade secrets and breach of contract, and returned a verdict of $22 million in favor of TechForward. And the jury also found by clear and convincing evidence that Best Buy did so willfully and maliciously, so the judge awarded an additional $5 million in punitive damages. The post goes on to describe some of Best Buy's tactics that came out in the trial, including emails that reference "duplicating" TechForward's model, emails from Best Buy telling employees to "remove the TechForward reference in the file names," and acknowledgment that the "brick wall" Best Buy promised to erect when it was negotiating with TechForward that was supposed to protect the startup's intellectual property was always pretty porous.
There are plenty of times big companies have done this to small Silicon Valley upstarts, and the VCs have just walked away. Not this time.
Of course moral victories are great, but my question was do the poor founders get anything tangible out of the debacle that ultimately cost them their company? I reached Kopelman by email just after his post, and he didn't want to go into specifics. But he said the two firms are setting up a carveout to make sure the founders got a chunk of the settlement. When they'll actually see the money is another matter. Best Buy is expected to appeal, tying this up even longer.
Go here to read Kopelman's account of it and news of the victory that was just announced today. And, like Kopelman, if you're in the startup ecosystem, think twice before you shop at Best Buy this Holiday season.