For Binary Capitals investors, a public apology may fall short

In May of last year, speaking on behalf of his firm, venture capitalist Justin Caldbeck of Binary Capital tweeted:Big believers in addition by subtraction for company culture. Bad apples impact others, and rest of team will thank you when theyre gone.

We may never know to whom Caldbeck was referring, but certainly, his messaging seems ironic in light of a detailed reportabout his own predatory behavior toward at least six women in the tech world that was published yesterdayby The Information.

After initially downplaying the reports accusations, Caldbeck earlier today acknowledged his poor behavior in a public apology, writing,The past 24 hours have been the darkest of my life. I have made many mistakes over the course of my career, some of which were brought to light this week. To say Im sorry about my behavior is a categorical understatement. Still, I need to say it: I am so, so sorry.

Caldbeck also stated in this apology that he will be taking an indefiniteleave of absence from the firm, saying he will be seeking professional counseling as I take steps to reflect on my behavior with and attitude towards women. I will find ways to learn from this difficult experience and to help drive necessary changes in the broader venture community.

We kind of doubt thats going to happen, given The Informations graphic expose. One individual who spoke to the outlet a former business colleague of Caldbeck produced sexually explicit text messages he had sent her as proof of his proclivities. A female founder separately reported that after meeting with Caldbeck to discuss a business deal, he suggested they go to a hotel room. A third woman, Journy co-founder Leiti Hsu, said Caldbeck groped her at one point underneath a restaurant table. (Hsu was among three women who agreed to be identified by name in the report.)

If Binarys own team isnt working right now on how to disengage Caldbeck from the firm for the sake of its greater good, wed be shocked. (Talk about bad apples.)

Certainly, it would be a breathtaking fall from grace for Caldbeck, a former managing director at Lightspeed Venture Partners whose earlier investments include BloomReach and GrubHub and who, in 2014, based on his track record, easily raised a $125 million debut fund with his friend, Jonathan Teo.

Teo, as industry insiders know, is a star in his own right. A former Google engineer, Teo worked briefly for Benchmark Capital, helping steer the firm into investments in Twitter and Instagram; afterward, he spent several years at General Catalyst Partners, where he was a cherished board member to several founders before jumping ship to partner with Caldbeck.

Indeed, when Binary Capital was ready for its close-up, the duo received splashy coverage in The New York Times.A little more than two years later, it received more glowing coverage, including right here, for closing its second fund with $175 million in commitments.

Today, neither Teo nor investor Matt Mazzeo who joined the firm more recently from Lowercase Capital nor the firms investors, are responding to our questions about Caldbecks future. But wecan guess at what follows, and it doesnt bode well for Caldbeck: Binarys investors seemingly have no choice other than to drop him if at all possible.

We suspected this even before Silicon Valleys top investorstook up theirpitchforks.But you can be sure that these institutions which include UCLA, Legacy Venture and the female-led fund of funds firm Weathergage Capital are feeling acutely pressured to act now.

How might that play out, exactly? Typically, venture funds have a no fault termination clause, meaning that if 70 to 75 percent of a funds investors or limited partners decide to invoke it, they can suspend the fund. Binarys LPs could threaten Caldbeck with this maneuver to get him out, perhaps elevating Mazzeo as partner in his stead.

A majority of Binarys investors also could simply vote to terminate the fund, using that same no fault provision. It sounds like a far-fetched scenario, but it happened years ago to another Bay Area venture firm, VSP Capital, when the six members of its LP board voted unanimously to recommend dissolution to its other LPs.

For what its worth, the head of that firm was female and her partners almost all of whom felt bullied by her were mostly male.

We learned a lesson in reporting thatearlier drama: that every VC is an individual, and sometimes, these individuals are not great. Another lesson:While venture capital firms arent as much like startups as investors would have you believe, one thing is true of both, and thats when things go really wrong, the wheels can come off fast.

We may well be mistaken. But our guess is that neither Caldbecks apology nor his leave of absence are going to be nearly enough. He might want to update his resume instead.

Read more: https://techcrunch.com/2017/06/23/for-binary-capitals-investors-a-public-apology-may-fall-short/