Venture Capital News

VCs, Epinions Workers Settle Legal Dispute

Fifty-one former employees of the startup Epinions Inc. settled their legal dispute with three prominent venture-capital firms and eBay Inc. in a case that could serve as a warning to the venture community.

The settlement evolved in the months after the two sides entered mediation in September and was formally agreed to last week.

It calls for an undisclosed amount to be paid to the 51 founders and employees of Epinions, which in April 2003 merged with DealTime Ltd. to become Shopping.com Ltd. and in August 2005 became part of eBay.

The employees filed suit in January 2005 claiming the venture firms and a former Epinions official misled them about the financial health of the company. The employees say they were convinced to give up their stock prior to the DealTime merger and before a lucrative initial public offering. Three venture capitalists listed in the suit - J. William Gurley of Benchmark Capital, John Johnston of August Capital and Thomas Geiselmann of BV Capital Management LLC - had invested in Epinions and were board members.

Benchmark and August declined to comment on the settlement. Geiselmann didn't return a call seeking comment.

eBay released a brief statement, saying "Defendants and plaintiffs are pleased that their disputes have been fully and finally resolved, and eBay acknowledges the role of Epinion's employees and founders in making the company a success."

"Our clients are very pleased with the resolution of the case," said Stephen Morrissey, an attorney representing the employees.

The settlement is likely to have a lasting influence on the venture community. In past decades, venture capitalists have considered themselves free from founder suits. After all, which entrepreneur would sue a firm that might fund his or her next company?

"It's not true anymore," says Bernard Vogel III, a corporate attorney at the Silicon Valley Law Group. "I think there is going to be more litigation against VCs." The contentious private company re-financings in the years after the dot-com collapse could be a source of the disputes, Vogel says.

The parties in the case filed a request in federal district court on Tuesday to transfer the matter back to California state court, where it is expected to be dismissed.

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Advent International Leads $93 Million Investment in Lululemon Athletica

Advent International announced it has acquired a significant minority interest in Vancouver-based Lululemon Athletica, the premier athletics and yoga apparel specialty retailer. The transaction will support the company’s growth strategy in the US and internationally and provide partial liquidity to the founder, Chip Wilson, who will retain a majority position in Lululemon The enterprise value of the transaction is approximately US$195 million. Advent partnered with Highland Capital Partners in this growth equity financing.

Lululemon was founded in 1998 in response to the increased participation of women in athletics. The technical products are designed with the feedback of athletes and yoga participants, allowing Lululemon to continually innovate the functionality and fit of their apparel. The company offers a comprehensive line of athletic pants, tops and yoga accessories. Today, lululemon is a premium brand and enjoys a market-leading position in the Canadian active-wear market.

lululemon sells its merchandise through 33 company-owned specialty retail locations, primarily in Canada with a presence in the US, Japan and Australia. Store openings and strong same-store sales have significantly contributed to the company’s rapid growth. lululemon has successfully doubled revenue and earnings annually for the past four years.

In connection with the investment, former Reebok CEO and Advent Operating Partner Robert Meers will be named the new CEO of lululemon athletica. Mr. Meers’ extensive consumer and retail experience will be important in leading the company through its aggressive US expansion plans.

The women’s sports-apparel industry is approximately a $15 billion market and 25% larger than men’s active wear. With impressive double-digit growth in this segment and a product designed with women in mind, lululemon is well-positioned for further expansion. To increase its presence, the company plans to expand on its four existing US stores and open 15 new US locations annually over the next five years.

Product innovation will remain a key priority as the company builds on its heritage of providing products for consumers who choose to lead a healthy and balanced lifestyle. lululemon has built considerable brand equity among yoga fans, and with the number of yoga participants in the US jumping more than fivefold from 3 million in 2000 to 16.5 million in 2005, growth opportunities for the business are excellent.

In connection with the transaction, Messrs. Collins and Mussafer will join the lululemon Board of Directors. Tom Stemberg, founder and former CEO of Staples and venture partner of Highland Capital Partners, will also join the Board. Pepper Hamilton served as the legal counsel and PricewaterhouseCoopers LLP provided accounting services to Advent International. Sean Morrison of Capital West Partners served as the investment advisor to lululemon.

lululemon is Advent's second investment in the active-wear market this year following the April 2005 buyout of Fat Face, the UK's leading retailer of active-lifestyle clothing.

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Third Brigade, Provider of Intrusion Prevention Systems, Completes a Total of $19 Million of Venture Funding

Representatives of Third Brigade Inc., an intrusion prevention system provider, announced Thursday the completion of their funding with the addition of CN$13.0 Million (US$11.5 Million USD) by its existing investors, BCE Capital, Celtic House Venture Partners, and BDC Venture Capital. This follows the initial CN$6.0 Million CDN (US$5.0 Million) financing, which was secured in April 2005.

Third Brigade provides host-based intrusion prevention systems to financial services, government, health care, telecommunications and other organizations that need to implement security best practices as part of a defense-in-depth strategy.

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Troviz Announces $5.25 Million Initial Funding Round

Representatives of Trovix, Inc., a provider of intelligent search technology, announced Thursday a US$5.25 million round of Series A financing from USVP, 3i and Stanford University. These funds will be used to support expanding sales, marketing and engineering efforts.

Trovix was founded with the goal of solving one of the most challenging technical problems in computerized search: how to evaluate unstructured documents and make decisions on information the same way a person would. Trovix's first product, Trovix Recruit, is the first ever Applicant Tracking System (ATS) that uses search technology sophisticated enough to consistently identify the best candidates out of thousands of resumes. The search technology in Trovix Recruit is based on ten years of research initiated at MIT.

Resumes are among the most difficult document types to search because of their irregular formatting, abundance of acronyms, similar words with different meanings, and related concepts such as "business development manager" and "strategic alliance manager." Trovix is able to match these intelligently against relevant job postings.

Trovix's intelligent search technology stands apart from existing solutions because it is:

• Contextual — Rather than basing results on the presence of key words, Trovix understands the concepts behind words in a document based on how they're used. For example, it differentiates "Oracle" as a skill from "Oracle" as an employer based on where it appears on a resume.
• Conceptual — It leverages a massive, proprietary knowledgebase to understand relationships between search terms and concepts. For example, the use of JBuilder is indicative of object oriented programming experience as well as experience using software development tools .
• Relative — Trovix uses proprietary algorithms to compare all potential search results to each other, and provide relative scores based on degree of match.
• Adaptive — Trovix learns from user feedback about implicit preferences that person may have, and personalizes search results based on that feedback.

Trovix was founded by Earl Rennison and Jeff Benrey. Rennison, Trovix's Chairman and CTO, was previously Chairman and CTO of Perspecta, a software company that developed advanced search and visual users interface technology for organizing large information repositories and acquired by Excite@Home. Benrey, the company's CEO is a veteran of Silicon Graphics and Apple.