An Arresting Development

The head of a brand-name Silicon Valley VC firm last month was arrested at his office, handcuffed and marched out past his colleagues. He then was arraigned on three misdemeanor charges of domestic assault against his (soon to be ex-) wife, pled not guilty to each count, posted $35,000 bail, received a restraining order and was told to be back in court next week. The firm’s LP advisory board was informed of the situation, although at least one non-advisory board LP contacted yesterday had not heard the news.

Your likely question now would be: Who is it? My answer: I’m not telling… yet (or maybe at all). If you therefore find what follows to be a giant waste of space, my apologies. I occasionally use this column to work through my own thought processes, and this is one of those times.

My rationale for withholding such info from you, dear readers, is not related to presumptions of innocence or allegations of guilt (although the allegations alone would be a permanent stain on his reputation). Instead, it’s because I do not see any evidence that this arrest -- or even possible convictions -- will affect the VC firm, its portfolio companies or its limited partners. As such, at this point, it is not our collective business.

Had the San Francisco DA opted to charge the VC with possible felonies (instead of misdemeanors), I might feel differently. After all, felonies sometimes can sometimes trigger certain “bad act” clauses in GP and LP agreements, although any actual GP or LP action still would be discretionary. Ditto for director or executive positions with portfolio companies. Were he to be convicted and imprisoned for any length of time, that could trigger key-man provisions due to his inability to provide services, but the likelihood of a lengthy jail sentence seems quite remote (again, related to the misdemeanor charges). LPs possibly could argue that the entire matter is causing him so much emotional/intellectual stress that he can no longer function as a fiduciary, but that is even more remote, particularly given how many big-name VCs have gone through very messy divorces over the past few years (not to mention some VCs who have been convicted for drunk driving).

Finally, it is important to note that the firm is not currently fund-raising. In other words, a resolution will hopefully be reached before the firm returns to market. At that point, LPs will be able to make an informed decision about their future involvement with this man, as will his fellow GPs. If found innocent, this becomes a non-issue. If found guilty, certain LPs probably will step away, although the vast majority will still base their decisions on investment returns instead of jury verdicts. As one attorney told me yesterday: “The hard truth is that many LPs will not find domestic abuse inconsistent with being a good venture capitalist.”

I promise to continue following this story as it progresses, as will my colleague Larry Aragon (who spent much of yesterday at SF police HQ, confirming info). If we learn something new, or are otherwise persuaded that identification is, indeed, in our readers’ interest, you’ll be the first to know.

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