RockYou, the startup that settled a suit brought by the founders’ former employer, is in the midst of raising financing from Partech International.
Meanwhile, Iconix, the company that sued the two RockYou founders for allegedly walking off with proprietary software they had developed while employees at Iconix, now counts itself as a beneficial owner of the startup and as a participant in RockYou’s recent $4.4 million Series A investment round, according to a regulatory document. Also listed as an investor in the Series A deal were return investors Sequoia Capital and Lightspeed Venture Partners. The document also lists an undisclosed Pennsylvania-based investor, which contributed $150,000 to the round.
The Iconix ownership stake in the Series A was part of its and RockYou’s out-of-court settlement agreement that was reached in November, says Iconix CFO Bob Zager. He would not comment on what percentage of the round Iconix owned, citing confidentiality as terms of the settlement.
Also uncertain is whether Partech is looking to join the Series A deal or invest in a new round. RockYou, a provider of photo slideshow sharing technology for blogs, closed the $4.4 million deal on Jan. 24, according to the regulatory document.
Judge Saundra Brown Armstrong had issued a preliminary injunction last fall that favored Iconix, which had previously employed Lance Tokuda and Jai Shen, co-founders of RockYou. Armstrong ruled that there was enough evidence to suggest that Iconix owns the IP underlying RockYou’s websites, according to court documents. Iconix and RockYou then reached a settlement less than a week after PE Week first reported the news of the injunction (in the Nov. 16, 2006 issue), but the settlement did not come to light until the Series A regulatory document was published listing Iconic as an investor.
Among the evidence supplied to the court last year was Tokuda’s PowerPoint presentation hawking his new company for investors and documented instant messaging conversations between Tokuda and Shen. In one of the IMs allegedly saved on Shen’s computer, Tokuda is said to have written: “Yeah, we actually lucked out with Iconix being so bad it was an easy call to leave versus trying to save them with our best ideas.”
San Mateo, Calif.-based RockYou last year raised $1.5 million from Sequoia Capital, Lightspeed Venture Partners and West Conshohocken, Penn.-based First Round Capital. Sequoia and the other VCs were in an awkward position because they may have known about the Iconix 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.
Iconix, which makes software designed to help protect consumers from email scams, raised $1 million from angel investors in November 2005.
Former AOL executive 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 earning a profit.