It’s starting to seem like a quarterly thing, with VCs fighting lawsuits.
The latest firm to get zinged is Sierra Ventures in Menlo Park, Calif.
Syncom Capital – an early stage venture firm from Silver Springs, Md., that invests in telecommunications and media companies – is claiming that Sierra Ventures Managing Director Jeffrey Drazen, along with radio executive Steven Hicks and the hedge fund manager Lawrence Goldfarb, wrested control of an Internet radio startup called ClickRadio from them.
The case went to trial in New York last week.
Syncom is alleging that the three intentionally sank the company, then scooped up its assets for next to nothing.
The firm is asking for more than $500 million in damages, though Syncom invested only $5 million in ClickRadio in 2000, about a year before it went out of business, according to the New York Post, which broke news of the trial last week.
Another plaintiff in the lawsuit against Drazen and company is Henry “Hank” Williams Jr., ClickRadio’s original CEO.
Syncom lists five investing professionals on its website. They are Herbert Wilkins Sr. and Terry Jones, both co-founders and managing general partners; General Partners Duane McKnight and Milford Thomas; and Senior Associate Herbert Wilkins Jr. Only the younger Wilkins could be reached for comment by PE Week. He acknowledged that he knew about the Post article, but had no further comment.
Calls to the offices of Goldfarb and Hicks (the brother of Texas Rangers owner and former buyout pro Tom Hicks) were not returned by PE Week’s press time last Thursday. Calls to Syncom’s limited partners, including Fairview Capital Partners, Hamilton Lane and the New York State Common Retirement Fund, were also not returned.
A spokeswoman for Sierra Ventures said, “None of the partners can talk to you about this. Our policy right now is not to comment.”
ClickRadio, founded in 1998, had developed a free, downloadable, ad-driven digital radio service, and the company had enticed some big investors with its technology.
Sierra Ventures funded the startup with a $7.1 million Series A in 1999. The following year, Sierra Ventures, Goldfarb’s investment firm Baystar Capital, Philips Electronics, Merrill Lynch and Syncom, invested $26.7 million, collectively.
Goldfarb and Drazen each took a board seat at ClickRadio, but according to the suit, refused to give one to Syncom’s Jones, though the suit claims that he was promised a seat.
The suit says, “as a result of the denial of a seat on the board, Syncom was denied an opportunity to vote and participate in directing the activities of the company.”
ClickRadio ultimately went out of business when it failed to secure further follow-on financing. The Post article says that Goldfarb, Drazan and Hicks deny there was any scheme to destroy ClickRadio, and they claim the company was a poorly run business that suffered after the tech bubble burst.
According to the plaintiffs, however, the day after ClickRadio shuttered its doors in September 2001, Goldfarb began negotiating with the company’s secured creditor, Comdisco, to buy its assets.
Three months and $3 million later, Goldfarb and Hicks purchased the assets at a bankruptcy auction. Several months after that, they offered to sell those assets to XM Satellite Radio in a deal that was never consummated.
Syncom, which raised a $135 million fund in 2000, is far from the first firm to tangle with another VC firm in recent memory. Last year was rife with lawsuits.
One suit in Silicon Valley last year involved dueling partners at VSP Capital in San Francisco.
In another case, entrepreneur Aamir Latif, who founded Nishan Systems in San Jose, Calif., settled his suit with investors Lightspeed Ventures and ComVentures.
And numerous founders and former employees of Epinions also settled their suit with the Silicon Valley venture firms they took on: August Capital, Benchmark Capital and BV Capital.