Yesterday, Nextdoor CEO Nirav Tolia was charged with a felony for allegedly leaving the scene of a hit-and-run that left a female driver injured. Speeding away in a BMW X5 reflects poorly on a startup like Nextdoor, which raised $100 million to build a social network for good neighbors. But for Tolia, this sudden scrutiny could also undo years of rehab on his tarnished personal brand.
In addition to the felony charge filed by the San Mateo district attorney, Tolia is also being sued by the woman who was allegedly injured as a result. When it comes to civil suits, Tolia knows the drill. Tolia is currently dealing with allegations that he stole trade secrets and infringed on trademark in order to form Nextdoor. And, in 2004, his former cofounders sued Tolia and others for a "pre-conceived scheme" that allegedly defrauded them out of $250 million. [Court documents for both cases are embedded below.]
The Epinions Lawsuit
For the past couple years, Tolia has been successfully promoting his hyperlocal crime-fighting app. But Silicon Valley stalwarts who survived the crash associate Tolia more closely with the bitter fallout from a 2004 IPO. Back then Tolia was the CEO of Epinions, a promising website that reviewed consumer products. Epinions merged with DealTime, a price comparison site, and the company went public as Shopping.com.
Tolia and his investors, including Benchmark Capital, made out like bandits, but his cofounders and employees filed a lawsuit alleging that they were bilked out of tens of millions of dollars. Tolia's former buddies felt the loss more keenly because they left behind scads and scads of unvested shares with their previous tech companies. Pre-crash, that risky stock move was heralded as a feat of dotcom bravery.
The lawsuit accused Tolia, Benchmark's Bill Gurley (now a Snapchat investor), and others investors of fraud, violating California securities law, breach of fiduciary duty, and (my personal favorite legalese) "unjust enrichment."
Ravikant and the other plaintiffs settled the lawsuit for an undisclosed sum in 2005. Afterward, Tolia's rehab involved pushing other past indiscretions out of the public eye. In this Businessweek article, for example, Tolia implies that his freshman year at Stanford University helped shape the idea for Nextdoor. The article doesn't mention that Tolia had to resign after the IPO for lying about his Stanford degree. (He claimed to have finished his degree in 1995 when he only completed it a year before the IPO.) Tolia also claimed to have worked as an analyst at McKinsey, but McKinsey had never heard the name Nirav Tolia.
Today, the Epinions portion of Shopping.com is worth hundreds of millions, but at the time of the DealTime merger, Epinions was valued at roughly $30 million, which rendered all common shares worthless.
"The question we're asking," said one former Epinions employee who asked not to be identified and who plans to be part of the lawsuit, "is how this company supposedly worth only $30 million was suddenly worth $300 million only 18 months later."
Benchmark didn't seem to put off by those kinds of valuation questions. After Tolia resigned, the firm helped him save face with a gig as an entrepreneur-in-residence. Benchmark also invested in all three of Nextdoor's funding rounds, backing the startup since its inception—and was implicated in the trade secret claims.
How does Tolia keep catching such lucrative breaks? Maybe because he knows the right people. Tolia cofounded a networking group during the '90s tech boom called Round Zero "famed for its lavish dinners and raucous arguments."
. . . this lawsuit is getting some attention because venture capitalists rarely sue each other. Here, a couple of VCs (including Naval Ravikant and Kevin Laws) are suing other VCs. In particular, Naval used to work for August Capital but is now suing his old firm and John Johnston, one of his former August partners. The VC world is clubby and driven by personal relationships. Given the prospect of repeated interaction between VCs over a career, most VCs find a way to resolve disputes out of court. Already, Naval and Kevin are feeling some of the consequences from their decision to break ranks.
As one source put it: "People don't do that. We don't shame people here." It's more self-serving than benevolent. The ethos is: "I hate you, but I need you." Just look at Tolia and Ravikant. You never know where your enemy will end up!
The Nextdoor Lawsuit
The trade secret allegations have gotten markedly less coverage and involve far fewer bold-faced names. In this case, Tolia sort of invited the charges on himself. Nextdoor sued Raj Abhyanker, a patent lawyer, for cyberpiracy and trademark infringement in order to make sure Tolia's company had the rights to the Nextdoor trademark.
It's unclear why anyone would want to lay claim to Fatdoor.com. But Abhyanker, a man "inclined to pursue terrible business ideas," filed counterclaims against both Nextdoor and its old friend Benchmark Capital. Abhyanker alleged that he tested out his idea for a neighborhood social network in Lorelei, a neighborhood in Menlo Park. According to Abhyanker, he told Benchmark about his idea and then Benchmark told Tolia:
In a proposed order filed the same day as his hit-and-run felony, Tolia's lawyers asked the court to decree that Tolia owns the Nextdoor trademark and Abhyanker's counterclaims were "dismissed with prejudice."
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