For Binary Capital’s investors, a public apology may fall short

In May of last year, 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 they’re gone.”

We may never know what company Caldbeck was referencing, but certainly, his messaging seems ironic in light of a detailed report about his own serial and predatory behavior toward women in tech that was published yesterday by The Information.

One of these, a former business colleague of Caldbeck, produced sexually explicit text messages he had sent her as proof of his proclivities. A female founder separately told the outlet that after meeting with Caldbeck to discuss a business deal, he suggested they go to a hotel room. A third woman, Journy cofounder Leiti Hsu, said Caldbeck groped her one point underneath a restaurant table. (Hsu was among three women who agreed to be identified by name in the report.)

Talk about bad apples. Indeed, if Binary’s own team isn’t working right now on how to disengage Caldbeck from the firm for the sake of its greater good, we’d be shocked.

Certainly, it would be a breathtaking fall from grace for Caldbeck, a former managing director at Lightspeed Venture Partners whose earlier deals include investments in 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. (Part of the excitement around Binary centered on the firm’s then 18-year-old analyst and associate, Tiffany Zhong, whose networking prowess was separately written about in the WSJ.)

Unfortunately, behind the scenes, Caldbeck was making unwanted advances to the female founders who approached the firm. If there was any lingering doubt about this, Caldbeck earlier today acknowledged his poor behavior in a public apology earlier today, 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 I’m 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 indefinite leave of absence from the firm “I will be seeking professional counseling as I take steps to reflect on my behavior with and attitude towards women,” he wrote. “I will find ways to learn from this difficult experience – and to help drive necessary changes in the broader venture community.”

Actually, that’s probably not going to happen.

Though neither Teo nor Mazzeo nor the firm’s investors have responded as of this writing to our questions about Caldbeck’s future, we can guess at what follows, and it doesn’t bode well for Caldwell, whose name is now mud, and whose investors have no choice other than to drop him if at all possible. (You can be sure that these investors — including the UCLA, Legacy Venture, and the female-led fund of funds firm Weathergage Capital — will be pressured from their own constituents to do so.)

How might that play out, exactly? Typically, venture funds have a “no fault” termination clause, meaning that if 70 to 75 percent of its investors — or “limited partners” — decide to invoke it, they can suspend the fund.

Binary’s LPs could threaten Caldbeck with this maneuver to get him out, perhaps elevating Mazzeo as partner in his stead.

A majority of Binary’s investors could also 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 the other LPs. (That was an ugly situation that you can read about here if you’re curious.)

For what it’s worth, the head of that firm was female and her partners — almost all of whom I interviewed as the firm was unwinding, and who felt bullied by her wanted out — were mostly male.

Venture capital firms aren’t as much like startups as they’d have you believe, but one thing is true of both: When things go really wrong, the wheels come off fast.

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

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