Gather around the rosé bottle for a late summer tale of venture capital drama. Last week I received a copy of a legal arbitration between the partners of a venture capital firm called Expansive Ventures. The early stage venture firm, which formed in 2014, has invested in four companies: Honest Dollar (sold to Goldman Sachs), Super Home, Park Jockey, and SixUp.
You may remember this situation from June, when my Fortune colleague Dan Primack noted that the fund was on a permanent hiatus while it figured out how to end the partnership between co-founders: Adeo Ressi, the head of incubator The Founder Institute and founder of TheFunded.com, a site that hosts reviews of venture capitalists, and Jon Soberg, formerly of Blumberg Capital. They started the firm as 50% partners. In the last year, it completely unraveled.
Now we know what happened.
It starts, like many divorces do, with minor disagreements. According to the court decision document, the partners fought over travel expenses (Soberg testified that he was a “frugal traveler;” according to the document; Ressi claimed Soberg’s trips were “frivolous,” the judge wrote.) They fought over Soberg’s salary, according to the document.
In July 2015, around the time Expansion Ventures’ fund held a second close on $40 million in funding, Ressi “went ballistic and took over the process,” according to testimony quoted in the document. Soberg felt the firm wasn’t being run as an equal partnership as Ressi allegedly aimed to take more control.
According to the document, Soberg accused Ressi of secretly reading Soberg’s email and changing the Expansive Ventures website to show Soberg in a limited role. He also accused Ressi of locking Soberg out of the office.
Ressi went on to tell Expansive’s investors that Soberg was dishonest, according to the document. He blocked Soberg’s access to salaries and to the firm’s Silicon Valley Bank accounts, asking the bank to make him the firm’s sole administrator, according to the document. He spent money from the fund to develop a trademark for his separate incubator, and he allegedly tried to bring in a third partner so they could outvote Soberg on decisions.
After a disagreement about which partner was leading an investment, Ressi allegedly accused Soberg of lying and asked the firm’s lawyer to add “clauses about honesty” to the fund agreements. Expansive’s limited partners and banker expressed concerns about the firm; its website had apparently been down for months (Ressi then allegedly redirected it to his incubator’s website.) The firm’s back office firm, Kranz & Associates, withdrew its business because of “the non-professional language and treatment of our staff by Adeo [Ressi],” according to the document.
In October 2015, Ressi “ambushed” Soberg with a meeting at Expansive’s law firm’s offices, where Ressi read Soberg a script that said he would no longer approve capital calls on investments, according to the document. He allegedly told Soberg the fund’s LPs supported his vision for the firm, asking “Do you want to be part of the highly visible failure that will impact your career, or take a founding credit in something that may go on to be relevant?” He offered Soberg a payment to leave the fund, according to the document.
The next morning, Ressi emailed Soberg, writing that “every hour on the hour until noon PST today starting at 10:00 AM PST, we will revise the Soberg Transition Agreement to you, until it becomes no offer with a wind down scenario at noon PST,” according to the document. Two hours later, he wrote, “I assume you want to dissolve the fund based on your lack of responses. In 20 minutes, all deals are off the table.” He later copied Soberg’s wife on another email threatening to sue Soberg, according to the document.
Soberg filed for arbitration and, after a judge reviewed eight days of testimony and 500 documents, he won. The terms of the arbitration, decided on July 7, call for Ressi to pay Soberg $2.5 million in compensation to make up for lost management fees and an additional $1 million in damages to his reputation. Ressi was ordered to be removed as a general partner at the firm and repay his $59,103 capital balance and $140,712 in legal fees. Soberg gets the full carried interest of the fund going forward.
Ressi “vehemently denies” any “plot.” In a blog post from last week, he wrote, “My bedside manners were not perfect, but my actions were all in the best interest of the Limited Partners.” He says he has filed a motion to vacate the award, though no filings appear on the San Francisco court’s website. He says he also has a separate complaint pending in Santa Clara, but the Santa Clara clerk strike has held it up. In an email to Term Sheet, he noted that he is still a 50% owner in the general partnership, and that the case “is months away from being settled.”
Soberg is now working with the LPs to determine the best path forward: manage out the existing portfolio or to do more investments. “None of LPs asked for this,” he says. “Obviously, nor did I.”
Update 1: Despite Ressi’s statement to Term Sheet that he is still a 50% of owner of Expansive Ventures, Soberg says that is not the case: Ressi was informed on July 18th that Expansive was officially taking his capital account as specified in the decision, an action Ressi acknowledged. This post has also been updated to note that the document is a “decision” and not a “settlement,” and that Ressi’s motion to vacate does not appear on the San Francisco court’s website.
Update 2: Here is the court document of the final decision: