Matt is right about this case illustrating what can happen when limited partnerships go bad, although outside of criminal fraud I can’t imagine a set of circumstances more extreme than what has been going on at VSP for the last year. The other important lesson for startups is that the problems of your venture investor can affect your company so it always makes good strategy to learn about the personal relationships behind the firm that is investing in you. Venture firms are made up of people and people don’t always get along… especially when money and egos are involved.

Private Equity Week:

The suit also alleges that Rees-Gallanter and Hamm “engaged in a scheme to retaliate against the limited partners of VSPIII for voting to liquidate the fund by conducting a sham auction of the assets, including the fund’s interest in Truveo Inc., so that Rees-Gallanter and Hamm could acquire Truveo for themselves.”

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