Our Long VC Nightmare is Over

The sordid story of VSP Capital is finally over. Let’s all breathe a sigh of relief, and take a collective shower.

For the uninitiated, here is a backgrounder: VSP was is a venture capital firm in San Francisco, which focuses on early-stage technology companies. It closed its third fund with $185 million in early 2005, but within months lost most of its partners and all of its Fund III limited partner commitments.

At the heart of the problem was a romantic relationship between Joanna Rees (then in the midst of a divorce) and John Hamm (then married). The issue wasn’t the coupling, per se, but rather Rees and Hamm’s attempts to keep it under wraps. They both denied its existence when asked by fellow VSP partners, which bred an untenable level of distrust. I also had sent Rees an ambiguous email about the situation – I didn’t name names – but she responded by specifically asserting that neither she nor Hamm were romantically involved.

By that May, three of the fund’s five general partners had quit. Only Rees and Hamm remained, and LPs used “key man” provisions to effectively discontinue the fund. VSP III had only made a small number of investments, and a decision was made to auction them off. But even that process was fraught with controversy, as Vannelli seemed to believe that an email from Rees could be construed as an attempt at self-dealing (a charge both Rees and Hamm strongly denied at the time). In the end, Hamm and Vannelli each ended up with one of the portfolio companies, with the third auctioned out elsewhere. By that time, Hamm had also officially left the Fund III partnership, in order to expedite the auction process.

That September, Rees and Hamm filed suit against both Vannelli and Crisp, alleging breaches of fiduciary duty, constructive fraud and misrepresentation and deceit. Taken as a whole, the 15-page suit argued that Vannelli and Crisp engaged in activities that led to the disbandment of VSP’s third fund, thus depriving the partnership of tens of millions in management fees and expected carried interest.

Not to be outdone, Vannelli and Crisp each fired back with countersuits, arguing that Rees and Hamm’s affair was to blame, and that the pair had “repeatedly used VSP Capital assets for their personal benefit and gain.” Vannelli settled relatively quickly (terms not disclosed), and currently runs an early-stage venture firm called KPG Capital.

Crisp, on the other hand, did not settle. That was partially because his case had gotten far more personal. Rees had begun searching through Crisp’s work emails, in an effort to find out if he had been looking for another job while still with VSP (which she felt would have been in violation of his partnership agreement). What she found, however, were personal emails between Crisp and friends, which she considered evidence of Crisp’s own marital infidelity — an allegation Crisp strongly denied.

Those emails found their way to Crisp’s wife (the couple remains married), which he felt was Rees’ doing. In court documents, Rees claims that the emails were discovered by her pending ex-husband (who had a key), and it was the ex who delivered them. Either way, it was an ugly situation.

Well, until today. Rees and Hamm announced this morning that the case has been settled out of court. The original release was titled “VSP Prevails in Dispute with Former Partner,” but that heading has since been removed at the VSP website.

The release still says that the settlement requires Crisp to pay out an undisclosed sum. I think there’s some more to the settlement story, but Crisp declined comment on his attorney’s advice. He also issued a pretty self-damning statement in the announcement:

“This brings an end to an unfortunate episode in our lives. Having had an opportunity to explore the issues in the case and reflect upon the evidence after discovery, I regret making various statements and allegations that Ms. Rees and Mr. Hamm had engaged in theft, embezzlement and certain other wrongful conduct. Those statements turned out not to be factually based. I believe we all think that it is time to move forward with our lives and careers.”

For Crisp, moving on means working at an undisclosed startup. He had spent his post-VSP time with Adams Street Partners, but quietly left a few weeks ago. I’ve independently confirmed that the departure from Adams Street is not related to the VSP matter.

For Rees and Hamm, it means getting married in the Bay Area this weekend now being husband and wife. There also have been rumors that Rees is planning to launch some sort of new VC effort, perhaps in partnership with her current boss Martin Varsavsky, CEO of Fon. She remains on the board of the NVCA, which kind of works as a Good Housekeeping seal of approval for those who haven’t heard all of the above.

The end (I hope).