Weathergage Capital
Matt Mazzeo
Jonathan Teo

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

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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 they’re gone.”

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

After initially downplaying the report’s 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 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, 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 that’s going to happen, given The Information’s 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 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 suprised. (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 firm’s investors, are responding to our questions about Caldbeck’s future. But we can guess at what follows, and it doesn’t bode well for Caldbeck: Binary’s investors seemingly have no choice other than to drop him if they’re able.

We suspected this even before Silicon Valley’s top investors took up their pitchforks. But you can be sure that these institutions that backed the firm — including 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 fund’s 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 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 it’s 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 that earlier drama: that every VC is an individual, and sometimes, these individuals are not great. Another lesson: While venture capital firms aren’t as much like startups as investors would have you believe, one thing is true of both, and that’s when things go really wrong, the wheels can come off fast.

We may well be mistaken. But given the outpouring of anger his actions have spurred, our guess is that neither Caldbeck’s apology nor his leave of absence are going to be nearly enough. He might want to update his resume instead.

[Update: Roughly 15 hours after posting this piece, Axios is reporting that a third fund Binary was apparently trying to close this past week — likely in anticipation of The Information’s story — is not closing after all right now. We can’t imagine it will ever close, though stay tuned.]

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