Khosla sues entrepreneur for fraud

Vinod Khosla's venture capital firm has sued the former CEO of a failed portfolio company, accusing him of fraud and extortion. But it's not really about recovering the $60 million that Khosla Ventures invested, since that money is long gone. Instead, it's about getting back at what Khosla believes is a duplicitous executive by exposing his alleged misdeeds.

The defendant: Dinesh Ramanathan, a onetime Cypress Semiconductor executive who in 2012 was named president and CEO of a Khosla-backed startup called Avogy that developed power systems for mobile devices. Avogy had been spun out of another Khosla portfolio company, and would raise more than $60 million in equity and debt funding from the venture capital firm. By late 2016, however, Avogy was failing and entered into a wind-down process that would involve the sale of its assets. Ramanathan became Avogy's sole board member during the auction process and also formed a new company that ultimately purchased Avogy's intellectual property for $200,000.

The conflict: Khosla makes two primary allegations.

  • Ramanathan had a slightly better offer for the Avogy IP than his own bid but instead engaged in self-dealing.
  • Ramanathan only really wanted to IP "to essentially extort a seven-figure cash payment" from another Khosla portfolio company. Axios has learned this other Khosla portfolio company is Soraa— the one that Avogy had been spun out of, which had cross-licensing deals with Avogy. The basic claim would be that Ramanathan threatened to interfere with a lucrative business opportunity for Soraa, by telling a third party that the license was in dispute. It's also worth noting that Soraa sued Ramanathan earlier this year, although the former Avogy CEO has not yet responded to the complaint.

Related case: Soraa actually sued Ramanathan earlier than Khosla did, filing a complaint in June. It is unclear why Khosla didn't join that case.

Statement from Ramanathan's attorney: "He disputes the allegations and will vigorously defend himself in court."

Bottom line: Khosla Ventures likely has already spent more on this case than the difference in what Ramanathan and the other bidder were willing to pay for the Avogy IP. This isn't really about the money.

Primary sources: Below is the complaint, filed last week in Santa Clara Superior Court.

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