How Goguen’s Case Hurts Sequoia

A week ago yesterday, we told you that longtime Sequoia partner Michael Goguen had been slapped with a stomach-turning complaint. At its crux, it accused him of breaching an agreement he’d made to pay $40 million to a woman he’d known for years. Apparently, after paying her $10 million, Goguen concluded that he was within his rights to stop writing her checks. The woman then hired a lawyer.

Whether the case ever goes to trial is now beside the point for Goguen, who has enjoyed a lucrative career as a venture capitalist and who, fairly or unfairly, will now be publicly associated with that complaint and the person who filed it, despite his strongly worded counter-complaint.

Fairly or unfairly, it also does real damage to Sequoia Capital.

Entrepreneurs aren’t the immediate issue. It would take a lot more than this bizarre situation for most founders to be deterred from accepting a check from Sequoia, whose imprimatur can make everything easier, from assembling a team, to attracting press, to, later, luring the right investment bankers.

That Goguen is no longer a partner of Sequoia certainly minimizes the damage. (A spokesman didn’t elaborate when explaining to us last week why Sequoia decided Goguen’s departure was the “appropriate course of action.” But we suspect his original deal with his accuser was made without the firm’s knowledge, which would be a major no-no. That kind of financial agreement would be material information to a partnership.)

A much bigger problem for Sequoia will be recruiting female investing partners — something that longtime Sequoia investor Michael Moritz has said interests the firm (and should).

You may recall his uncomfortable interview back in December with Bloomberg’s Emily Chang, when he told her that Sequoia “looks very hard [for female recruits] . . . We just hired a young woman from Stanford who is every bit as good as her peers and if there are more like her, we’ll hire them.” Moritz continued, “What we’re not prepared to do is to lower our standards.”

That “standards” comment immediately came back to bite Sequoia in the behind, and in light of what’s happening with Goguen, Moritz surely regrets it more than ever.

But no matter his intent, the firm will likely have even fewer choices now. It was already hard to imagine many top female operators who’d leap at the chance to work at an almost exclusively male venture firm. A situation like Goguen’s can only hurt its odds of drawing in smart women.

I don’t know anything about Sequoia’s internal dynamics. But partnerships are very small, intimate entities, in which people spend a lot of time socializing amongst themselves. That one of Sequoia’s partners had what now seems like a highly peculiar relationship with women would certainly raise a red flag for me, particularly following Moritz’s comments.

Maybe Sequoia feels like it did enough by distancing itself from Goguen. But for its own sake, the firm would be smart to do more. A detailed explanation of what it knew about Goguen’s behavior would help, as would Sequoia’s history of working with female entrepreneurs and female associates. It would also be nice to know whether and how Sequoia plans to help improve the gender issue more broadly in Silicon Valley.

As an eminent venture capital firm, it has a responsibility to do something.

Better sooner than later, too.