Friday, February 24, 2012

Fired CEO Claims Benchmark Stole His Ideas

Here's a cautionary tale if you are seeking VC funding for your startup: Fatdoor Founder Sues Benchmark Capital, Saying It Stole His Idea for Nextdoor.
The startup (Fatdoor) had plans to be the "Facebook" of local neighborhoods, had filed many patents applications, had thousands of viewers, an experienced entrepreneur as the CEO, had allegedly impressed Benchmark only to see it then pass on funding ... and fund another startup (Nextdoor) six months later on the "same idea." Because Benchmark signed no NDA, and the CEO's applications were assigned to the startup and later sold to Google, the fired CEO was reduced to filing a trade secret, interference, and fraud lawsuit. I read the complaint and it sounds like this will be a difficult case. Because you won't find many VCs willing to sign NDAs, and assignment of your patents and applications to the startup, only raises the defense of assignor estoppel if you leave the place, contracts and patents cannot protect against investors from "taking your idea." For one, it will be difficult to define what is your idea. Surely, the companies have differences. So how does one protect self-interest? If you are going to spend the time and effort that this CEO allegedly put into the venture, you need to be well advised and have a corporate structure that allows you to retain management and voting control while satisfying the VCs interest.

Thanks to Suzie Lipton-Moll on this article! 

Copyright © 2012 Robert Moll. All rights reserved.