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Ellen Pao and the case of Twitter deal attribution

March 26, 2015, 2:33 PM UTC
Ellen Pao leaves court as her sexual bias trial against fomer employer Kleiner Perkins Caufield & Byerr continues in San Francisco
Ellen Pao leaves San Francisco Superior Court Civic Center Courthouse during a lunch break in San Francisco, California March 25, 2015. Pao, the interim CEO of Reddit, is suing her former employer Kleiner Perkins Caufield & Byerr, a venture capital firm, for $16 million in a landmark case detailing the alleged sexual bias against women in Silicon Valley. REUTERS/Stephen Lam - RTR4UVEY
Photograph by Stephen Lam — Reuters

Closing arguments wrapped up yesterday in the Ellen Pao vs. Kleiner Perkins case, with the jury expected to begin deliberations this morning.

There seems to be no spectator consensus on who will win, given the subjectivity of the core gender discrimination allegations (something that, legally speaking, would seem to tilt things in KP’s favor). If Pao loses, I wouldn’t be surprised. If Kleiner loses and is forced to pay $16 million (or $160 million), I also wouldn’t be surprised. This is where that phrase “the jury is out” comes from.

The verdict may hinge on whether or not Pao convinced the jury that her investing track record – or at least her track record in bringing deals to the partnership – was clearly deserving of a promotion. And, within that, both sides yesterday went back to Pao’s testimony about advocating that Kleiner invest in Twitter (TWTR) in 2008. This would be Twitter’s $15 million Series B round that ultimately was led by Spark Capital.

Here was Pao’s recollection from the stand (per Re/Code):

“I spent time with Jack Dorsey and I thought we should look into that more. I tried to bring it to Matt Murphy’s attention — he had met with them maybe a year earlier. I said I understood he had spent some time with the company previously and I thought we should take another look, I heard they were raising money and it could be an interesting investment. … They had only raised one or two rounds of funding so they were very early stage. … Matt Murphy said yes, they had looked before, but the team was not business-minded and that we should not spend any more time with them.”

KP’s attorneys didn’t push on this history during cross-examination of Pao, nor during subsequent testimony by partners like Matt Murphy. But the firm’s attorney did say take issue with it yesterday, during her summation:

“What on earth did you see other than the bald contention that supports that? Did you see notes of meetings from Jack Dorsey? Was there an email? Was there any kind of business plan or due diligence? Did any senior partner testify? Did you even see any mention of Twitter in her self-reviews when she listed accomplishment and accomplishment and accomplishment. I can say I sourced Twitter, but that does not make it so.”

Or, put another way, KP’s attorney is implicitly saying that Pao perjured herself.

For starters, I’ve spoken (on background, natch) with a couple of people who were very close to Twitter and its funding process back in 2008. One tells me that Pao did indeed conduct due diligence on Twitter and advocated for the deal inside of Kleiner. Another recalls a meeting with several Kleiner staffers around the time of the Series B round (“there were a bunch of people in the room”), but does not remember if Pao was among those gathered. The person who could best vouch for/dispute this history is Jack Dorsey, but he did not return requests for comment.

But pay closer attention to what Kleiner’s attorney said at the end: “I can say I sourced Twitter, but that does not make it so.”

She’s right, but not necessarily because Pao’s story does or doesn’t hold up. It’s because there is nothing more contentious in venture capital (and, arguably, private equity) than who “sourced” a deal.

There is no common definition for the phrase, which is why the most successful VC transactions seem to have so many fathers within the same firm. Was it the associate who first brought the deal to a partner’s attention? Is it the person who had the first meeting, or made the first contact? Is it the person who advocated most passionately for the deal? Or is it whoever ultimately takes the board seat? Is it whoever the entrepreneur says it is?

A bunch of you have asked over the years why I haven’t worked on a rival to the Forbes Midas List, given my regular complaints about its methodology. The simplest answer is that I did try last year — in partnership with a fund-of-funds manager — but the single biggest sticking point was getting VC firms to provide deal attribution. This was most pronounced at hierarchical firms, where perhaps senior partners didn’t want to be listed below those with far less fund economics. (fyi: we may still get there on our list, but it’s sadly a ways off). Or perhaps where one partner may be planning to hang his or her own shingle, and overall fund performance figures are on the line.

So the reality is that Pao may honestly believe she sourced Twitter. And KP may honestly believe that she didn’t. Even if the underlying facts are not in dispute.

It’s just one of many reasons why this verdict will be second-guessed, no matter what the jury finds.

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