I’ve long been on record as saying that the worst-ever VC deal came in 2000, when Hummer Winblad Venture Partners invested $15 million into file-swapper/stealer Napster Inc. The reason is threefold:
- Napster already was facing several copyright infringement lawsuits, with several more expected to follow.
- The deal included a provision whereby HWVP partner Hank Barry would actually become Napster’s interim CEO. The idea was that Barry, a respected former entertainment attorney, would be able to monitor/direct Napster’s activities more closely than he could from a board position.
- Napster had few financial ambitions beyond making ends meet. Remember, this was well before either consumers or record companies were interested in engaging a third-party that charged for individual MP3s. There was some vague talk of subscription-based or pay-per-play options, but the initial idea was to present advertising while songs were downloading, as if anyone sat around watching the virtual bar fill up for 30 minutes. In a moment of depressing candor, then-HWVP partner Dan Beldy told a New York audience that the company was doing well off sales of T-shirts and hats emblazoned with the Napster logo. He also expressed a belief that HWVP itself had little to no liability risk related to the investment.
Fast forward five years, and the legal case (i.e., alleged liability) continues again HWVP, which is basically accused of enabling copyright infringement by keeping Napster afloat. The latest twist is an Arthur Anderson-like allegation that Ann Winblad directed HWVP staffers to destroy any emails related to the investment/case. Red Herring has the story.
*** BreakingViews (via DealBook) suggests that the era of mega-buyouts has stalled, with the failed HCA buyout offered as evidence. If true (and I’m not yet convinced), what does it mean for the $14 billion+ funds that have been raised lately? They’ve already promised fewer club deals to nervous LPs, and are unlikely to significantly narrow the equity-to-debt ratios. Two words: Fund cuts.
*** Lots of blog notes about last Thursday’s note that HuffingtonPost.com was closing in on $5 million in VC funding (think East Coast backers), and a subsequent story by Constance Loizos at www.PrivateEquityWeek.com. Read here and here.
***Jeff Bussgang with some reflective career advice for those who want to become venture capitalists.
*** Josh Kopelman of First Round Capital on how he assesses an entrepreneur’s ability to execute.