Practices

Venture Capital Litigation and Dispute Counseling

Why Cooley

Litigation

We have handled numerous lawsuits and arbitrations on behalf of venture capital, leveraged buyout and private equity funds and their management companies across the country. These high-stakes cases often pit the management group against the interests of portfolio companies, limited partners, other funds and third parties, as well as actual partnership members. We are highly sensitive to the strategic imperative to resolve or win these cases with minimal public attention and maximum confidentiality; as such, we offer a sampling of unnamed litigation matters we recently handled:

  • LP v. GP: East Coast federal district court action by LP, who claimed $100 million in damages against a family of funds (whose subscribed capital totaled over $2 billion), based on alleged reckless investing, cross-fund investing, excessive valuations and self-dealing.
  • LP v. GP: California arbitration and Delaware Court of Chancery action brought by LP, claiming that GP breached its duties, including misallocation of expenses between GP and fund, making loans to companies immediately prior to their dissolution, fraud in overstating investment returns to induce additional capital contributions and failure to distribute public company stock in a timely manner.
  • GP v. GP: California state court action in which two out of 12 alleged general partners of a billion-dollar fund claimed their ouster was wrongful.
  • Portfolio Company v. VC: Non-California state court action in which portfolio company claimed that a specialty venture fund could not invest in its competitor without "inevitably disclosing" the portfolio company's trade secrets and confidential information (notwithstanding express carve-out for VC's right to make domain investments).
  • Side Fund LP v. Main Fund GP: California state court action in which side fund LP sought to rescind side fund based on adjustments to size of main fund.
  • VC v. VC: California state court action alleging that "new" investors improperly washed-out prior round investors.
  • Founder v. VC: Derivative suit brought by founders of portfolio company alleging breaches of duty arising from a Silicon Valley venture fund’s claimed refusal to make additional investments that founders claimed would have saved company from bankruptcy. Prevailed on motion dismissing all claims in favor of the fund and its principals.  
  • VC v. Portfolio Company: California state court action alleging fraud and misrepresentations based on company’s valuation.
  • Chapter 7 Bankruptcy Trustee v. Fund/GP: Bankruptcy court action for alleged breach of fiduciary duties and unlawful redemptions. 
  • Receiver v. Fund/GP: California state court action brought by Delaware Court appointed receiver against investors in and board members of portfolio company. 
  • Clawbacks: Arbitration over end-of-fund valuations to determine whether clawback provisions applied. 
  • Disclosure of IRR data: Representation of VCs in litigation over forced disclosure by governmental investing agencies/groups of IRR data for the groups' VC investments. 
  • Shareholder representative matters: Non-California arbitration representing VC as representative of selling shareholders, seeking from buyer of VC-backed portfolio company millions of dollars from a post-merger escrow account. 
  • Zone of insolvency investing: California state court action over whether "zone of insolvency" bridge financing created liability on the part of the VC for the company's debts when it went bankrupt. 
  • Trade secret disputes: Ohio district court action against VC fund alleging misappropriation of trade secrets and tortious interference with a contract involving VC fund’s portfolio company. Successfully defended the plaintiff’s preliminary injunction motion. 
  • Civil disputes: VC in litigation against a third party seeking payment for providing leads to potential investors. 
  • Pre-litigation disputes: VC fund in a pre-litigation matter against three of its investors involving claims of fraud and misrepresentation. 
  • SEC litigation: VC fund in connection the SEC’s ongoing litigation against one of their portfolio companies relating to a 2018 token sale in which the VC had invested. 
  • SEC investigations: VC fund in an SEC investigation of one of its portfolio companies, including participating in a voluntary interview at the SEC’s offices. 
  • DOJ Investigations: VC in connection with a DOJ investigation of one of its limited partners, providing helpful documents and information to the US Attorney.

Resolution of operating problems

Our litigators frequently counsel funds regarding a variety of operational problems, and we appreciate the importance of timely strategic and confidential counseling in order to stop them from escalating into formal litigation. Examples of issues we handle include:

  • Defaulting limited partners 
  • Demands for sensitive information by limited partners 
  • Confidentiality agreements 
  • Board and corporate governance matters 
  • Conflicts over valuations of portfolio companies 
  • Conflicts with limited partner advisory committees 
  • Disputes with limited partners over investment decisions 
  • Management of intellectual property 
  • Regulatory (Securities and Exchange Commission, NASD) inquiries 
  • Third-party discovery directed to funds 
  • Internal conflicts over carried interest allocations and new fund participation rights 
  • Management and board transitions of portfolio companies 
  • Insurance coverage