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January 27, 2005

3 Epinions founders sue VCs, co-founder Nirav Tolia

From New York Times :
Partners at two prominent Silicon Valley venture capital firms deceived four of the five founders of a start-up company, withholding critical information and thereby cheating them out of tens of millions of dollars, according to a lawsuit.

The suit, filed in Superior Court here last week, was brought on behalf of three of the five founders of Epinions, a consumer product review Web site founded in 1999 that quickly became one of the dot-com era's more celebrated start-ups. The suit named J. William Gurley of Benchmark Capital and John R. Johnston of August Capital, both original investors in Epinions and directors of the company, and an Epinions co-founder, Nirav N. Tolia.

"It's rare for the founders of a company to sue their financial backers," said Paul T. Friedman, a partner at Morrison & Foerster in San Francisco. "Venture is a small world in which relationships are very important. Most people find a way to avoid disputes so they can live another day."

The plaintiffs include two co-founders of Indian origin: Naval Ravikant and Ramanathan Guha. Interestingly, Naval Ravikant used to work with August Capital (after he had left Epinions). He's no longer listed as part of the fund's team.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.