Jun 26, 2017

Binary Capital partner quits (update: so does Caldbeck)

Binary Capital website

We have some updates on the situation at Binary Capital, the San Francisco-based venture capital firm whose co-founding partner, Justin Caldbeck, on Friday took an indefinite leave of absence after multiple accusations of sexual harassment from female entrepreneurs. Per sources:

Outta there: Matt Mazzeo has left Binary Capital, which he had quietly joined as its third partner. Axios has reported on Mazzeo's plans back in April, but the move had never been officially announced. Mazzeo had spent the past five years with Lowercase Capital, the seed-stage firm founded by Chris Sacca, but chose to team up with Binary after Sacca announced his retirement from VC.

Update: Justin Caldbeck has also resigned from the firm, effective immediately, Axios has learned.

Per a source close to Mazzeo:

"Matt terminated all ties with Binary today with immediate effect. He was with Binary for a matter of weeks, but the nature of the ongoing allegations surrounding the company and the facts that had come to light made it clear that he could no longer be associated with the firm. Matt felt strongly that these allegations cannot be overlooked - this community deserves far better. Furthermore, past public statements made by the firm were not approved by him or crafted with his counsel."

Cash withdrawal: Binary Capital has been scheduled on Friday to close on upwards of $75 million in new capital, timed to Mazzeo's addition to the partnership. This would have been an extension to the $175 million Binary raised for its second fund last summer. It didn't happen, as we reported on Saturday.

What next? Limited partners in Binary Capital's two funds have not yet decided what to do going forward, as of Sunday evening. If they decide not to let Teo continue to run the show going forward, they have two options for changing management:

  1. Argue that Caldbeck's leave of absence de facto triggers a so-called "keyman" clause in the partnership agreements.
  2. Exercise a no-fault termination clause.

Either of these choices likely would require a super-majority of LP interests, and the LPs then would need to find a third party to manage out the existing portfolios.

Update: Justin Caldbeck has now formally resigned from Binary Capital, per an email sent late on Sunday evening from firm co-founder Jonathan Teo to the firm's limited partners. Below is text of that email, provided to Axios by a source:

I trusted my partner and it is clear that I shouldn't have. The predatory behavior Justin has been accused of is deplorable, and there will be zero tolerance at our firm of any conduct that is demeaning to women.

Effective immediately, Justin has resigned from Binary Capital. He will have no further role at the firm and I will be the sole managing partner. Matt Mazzeo has also announced his resignation. We have retained Orin Snyder and Michele Maryott of Gibson Dunn to conduct an independent internal investigation of this matter. It is important we understand how these circumstances could have been avoided and how we will prevent this kind of behavior from occurring in the future. We look forward to reviewing and implementing the appropriate recommendations based on their findings.

We recognize that power dynamics in the business world can, and often do, place women in difficult or hostile situations. As I write this today, I regret that I did not insist on Justin's immediate exit after his behavior was revealed. I would also like to apologize for our initial response to these allegations. It is clear to me now that I was misled by a partner and friend.

In venture capital, we pride ourselves on being astute stewards of talent and resources. We all aim to support the ambitions of the entrepreneurs we support and invest alongside.

Many of our most important investors and entrepreneurs are women. I helped found Binary Capital with the mission of creating a more authentic connection and access for all. Moving forward, we will redouble our efforts to promote and ensure gender equality in all of our endeavors as we remain focused on our fund and investors.

While we are disappointed with this outcome, we are committed to handling this transition smoothly and properly. We couldn't have achieved our success without you and we are deeply grateful for your support. We have an outstanding team at Binary and we look forward to working together in the future as we continue to pursue our vision to enable people to more authentically connect with one another and the world around them.

Jonathan Teo

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