Iconix takes stake in $4.4M RockYou Series A

Iconix, the company that sued two of its former employees for walking off with proprietary software they later used to found a RockYou, now counts itself as a beneficial owner of the startup and as a participant in RockYou’s $4.4 million Series A investment round after settling with the company out of court in November, PE Week has learned.

The ownership stake in the was part of the lawsuit settlement says Iconix CFO Bob Zager. He would not comment on what percentage of the round Iconix owned, citing confidentiality as terms of the settlement. “The good news is the litigation is behind us,” he says.

Iconix, which makes software designed to help protect consumers from email scams, raised $1 million from angel investors in November 2005. It has not yet raised money from VCs and has not received investment dollars from the backers RockYou, Zager says. “Part of the issue is that we’re at the low end of the revenue curve and we don’t need to be talking to VCs if we can avoid it,” he says.

Judge Saundra Brown Armstrong had issued a preliminary injunction that favored Iconix last fall, which had previously employed both Lance Tokuda and Jai Shen, the co-founders of RockYou. She ruled that there is enough evidence to suggest that Iconix owns the IP underlying RockYou’s websites, according to court documents.

RockYou raised $1.5 million from Sequoia Capital, Lightspeed Venture Partners and First Round Capital last year.

Sequoia and the other VCs were in an awkward position because they may have known about the suit before they invested. A regulatory document shows that they funded RockYou on May 23, nearly two months after Iconix filed suit against RockYou and its founders on March 27. The company could have been required to turn over to Iconix any revenue, profit or proceeds from stock sales.

The startup’s most recent round of financing, closed January 24, lists the founders, Sequoia Capital XII and Lightspeed Venture Partners VII as beneficial owners beside Iconix, according to a regulatory filing.

Although there is no mention of First Round Capital, a seed investor, documents show RockYou secured $150,000 from an investor in Pennsylvania, the state First Round Capital is based in.

The RockYou settlement came less than a week after PE Week broke the news of the injunction.

Jeremy Liew, the investor with Lightspeed Venture Partners who led his firm’s participation in the Series A round, wrote on a popular weblog that RockYou was making revenue, but not profit.