IP: Dot.Com Horror stories (humor :) djf)

[David Farber <dave () farber net>]

> From:co.uk>
> To: <farber () cis upenn edu>
> Subject: Dot.Com Horror stories
> Date: Wed, 6 Feb 2002 11:14:15 -0000
>
> Dear Mr Farber
>
> I read that you like to hear about Dotcom horror stories.... If you were to
> forward this on I'd prefer to be anon. I promise you it is all true, I was
> the Company's lawyer brought in to try and save it - I failed.
> ---------------------------------------------------------
>
> About 8 months ago I went work at a small venture capital company
> specialising in dotcom investments.. If a lot of money hadn't been lost (and
> my job) this would be laughable. My only saving grace is that I was brought
> into after all what I tell you happened.
>
> The VC Company raised £18 million from various wealthy individuals, and
> promptly spent £1million on furniture for its office (£2million deposit
> £60,00 a quarter rent). It employed some big names in business, one of whom,
> when times were bad shouted at the CEO " I don't know what I'm doing here, I
> can't survive on this bloody salary". He was earning £250,000 pa.
>
> The Company's lawyers were advising on investments whilst at the same time
> taking shares in the investment vehicles.
>
> One of those vehicles was an  intellectual property rights licensing
> business, it was funded to the tune of £2 million, within a month it had
> opened an office in the Lipstick Building NY and another in Atlanta  and had
> spent £200,000 on a staff trip to California. On reviewing the company's
> books I found that it had not secured one single IP right. It was dead
> within 6 months. when the VC company tried to take control it found it
> couldn't it only had a 25% stake in the company. I know one of the Directors
> used VC money to buy a house for himself - but what can we do it about it
> now ? The police laughed in our faces - and who can blame them.
>
> Another company had been set up to match internet advertisers to relevant
> sites. It's managing director's CV was impressive with much experience
> detailed. In fact his previous job had been selling fake Rolex watches on
> the beaches of the Algarve. Again, the VC couldn't take control of the
> company as it had a minority share. The investment vehicle is now listed as
> a creditor entitled to a second tranche of funding.
>
> There were many lessons I learned: make sure that your lawyers do due
> diligence on all start ups including personal checks on directors - avoid
> start ups that are introduced to you by lawyers or other semi-commercial
> people; ensure there are default, termination and repayment provisions in
> shareholder and loan agreements for serious breaches of the business plan;
> make sure there is some way of taking control of the company in an
> emergency. These may not be standard in the VC industry - but unless, like
> me, you want to be claiming unemployment benefit then I recommend you do.

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