
David Lee files lawsuit against former partner Ron Conway - kirillzubovsky
https://techcrunch.com/2017/11/05/venture-capitalist-david-lee-sues-former-partner-ron-conway-for-millions/
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tomasien
This is filed not served right? That would mean he’s threatening to sue Ronco
I believe. That may seem like semantics but the difference is not trivial at
allll.

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jo909
The filing is what makes it officially into a real lawsuit before the court,
so it's not a threat anymore but the first step of the actual thing.

It might be a tactical move where they still hope to settle out of court, but
that's not what I would see as "threatening to sue".

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tomasien
"The filing is what makes it officially into a real lawsuit before the court"

That is only true in the sense that the court will now view it as "something"
rather than "nothing". You are not being sued until a lawsuit is served, and
the difference between having a lawsuit filed against you and having a lawsuit
served against you is massive. A lawyer has a decent amount of liability for
filing a lawsuit that turns out to be total bullshit, but that liability
skyrockets once it is served, so if the public is trying to determine how
seriously to take a suit, whether it is threatened/filed/served are three very
different tiers.

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jo909
How many lawsuits are filed but then not served intentionally (not from lack
of being able to find the other party)?

If the liability skyrockets there should be a decent number of cases where the
suing party has a change of heart and does not take it to the next tier of
seriousness. If there isn't the difference is without distinction.

There is little incentive to use the filing as a seperate tactical step and
then not try to serve or delay it (for the plaintiff). I'd say the filing is
the start of the lawsuit for the plaintiff, the serving is the start for the
defendant. Which makes the filing the overall start of the lawsuit.

It is definitely not a mere threat.

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CalChris
_a technique known as a fee waiver ... The concept was apparently foreign to
Conway, however._

How is this possible? VCs are masters of terms and veteran VCs are
grandmasters of terms.

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sverige
It is not uncommon for smart, experienced people to suddenly become ignorant
rubes in the context of lawsuits.

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CalChris
But after discovery, I think Conway will have _fee waiver_ shoved down his
throat. Like if he's ever done it or if anyone else in the firm has ever done
it .... I know next to nothing about either of these guys but IMHO Conway
should have settled this matter yesterday.

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rdl
I hate the way the tax code, and subsequent decades of legal hacks, produces
weird structures like the standard VC fund. There have to be ways of
collecting the same total taxes, or more, without distorting markets.

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CalChris
I think the purpose of VC is to distort markets.

What the tax code is trying to do here is to incentivize VCs and entrepreneurs
to take risks. At the same time, you need anti-abuse to keep people from
unfairly taking advantage of the incentives. This ends up being complicated.

Maybe something like a 10% corporate AMT would help. Your WSGR startup lawyer
will strongly recommend against trying A Double Irish Dutch Sandwich. Apple
can do this because they will hire an army of lawyers to keep the Feds busy.
You can't but at the same time you have to compete with Apple and Google and
.... A corporate AMT would help level that playing field.

Won't happen.

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kirillzubovsky
Personally, I've had the best experience with David, and it would be hard to
imagine that he would've filed a suit if he wasn't right. He seems as a very
honorable guy to me.

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stevenj
If it's in fact true that David didn't first try to talk to Ron about this,
that's surprising to me.

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owens99
> Conway also believed his former partner to be paying himself far and above
> the fund’s $250,000 annual salary cap by skimming off of SV Angel funds
> through a technique known as a fee waiver, a fairly common way for fund
> managers to cover the costs they are expected to invest upfront.

Can anyone clarify how this would be considered skimming? Here's a definition
of a Fee Waiver from Mondaq.com:

A management fee waiver or conversion is a strategy whereby the general
partner or management company of a private equity fund "waives" the management
fee (often up to 2 percent of assets or committed capital per annum), which
would typically be paid quarterly and treated as ordinary income for tax
purposes, in exchange for an increased "carried interest," which often
qualifies for long-term capital gain treatment. In many cases, the receipt of
an additional carried interest pursuant to a fee waiver can be used to satisfy
the general partner's capital contribution obligation. The key to the strategy
is to change the management fee, which is unconditionally payable, into a
payment that is conditioned upon future profitability of the fund. However,
that does not necessarily mean that the fund has to have an overall net profit
for the general partner or manager to earn the waived fee. In many variants of
the strategy, the additional carried interest obtained as a result of the
waiver results in a priority allocation of the fund's profits from certain
investments and/or during certain fiscal periods, unlike the basic carried
interest. In these cases, the general partner can realize some carried
interest (and, effectively, some portion of the "waived" management fee) even
if the fund has a net loss at the end of the overall investment lifecycle.

If the structure is upheld, a management fee waiver effectively allows the
general partner to largely convert ordinary income (management fee), currently
taxed at a maximum federal rate of 35 percent, into capital gain, currently
taxed at 15 percent. There also may be a deferral benefit — delaying current
taxation on the waived management fee income and pushing the tax to later
years when the gains that produce the additional carried interest are
realized. Limited partners who are individuals may also avoid limitations that
might otherwise apply to management fee deductions. Finally, the waived amount
is categorized as a "profits interest," which is not subject to employment
taxes, whereas management fee income generally is.

For New York taxation purposes, there is no rate differential between ordinary
income and capital gains, although there could be a deferral benefit. In
addition, some non-resident general partners who waive their management fees
take the position that no New York income or New York City unincorporated
business tax is due on the additional carried interest.

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ambentzen
My guess is the management fee is part of the salary cap, but the capital gain
it is converted into is not. Thus he pays himself the $250,000 + capital gains
instead of management fees + salary up to a grand total of $250,000.

~~~
owens99
So he used money from the management fee to get himself extra carry? I'd
assume that the carry would have to be evenly distributed to all the partners.
Also, if he's able to get superior returns without spending his management
fee, what's wrong with reinvesting the unspent money into the carry to benefit
the partners (as long as it's equally distributed)?

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lostboys67
yes that's my understanding of how partnerships work unless VC funds are not
"partnerships" in the way a law firm is

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crazyalx77
The threats are no more. This is now officially a lawsuit as its been file
with the courts.

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ronilan
I know it is a little off topic, but it has to be said: Ronco's cameo in Katy
Perry's "This is How We Do" was brilliant [1]

[1]
[https://www.youtube.com/watch?v=7RMQksXpQSk](https://www.youtube.com/watch?v=7RMQksXpQSk)

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staunch
This is all just tax loophole money anyway thanks to the carried interest
scam. They're fighting over money that rightfully belongs to schools and the
needy. These seem like particularly greedy thieves.

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yeukhon
Are Ron Conway and Kellyanne Conway related?

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porfirium
I don't understand the downvotes, as usual. I wish it was mandatory to write a
reason every time you donwvote someone.

They don't seem to be related.

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yeukhon
They probably think I am trolling or off-topic. Here you can’t do either. I
don’t mind getting downvoted. It’s only an online thing. But thanks for the
reply though, totally appreicate it.

~~~
mikestew
_They probably think I am trolling or off-topic_

You _are_ off-topic, but I downvoted your comment for being lazy. HN isn’t
your mobile operating system’s virtual assistant.

~~~
porfirium
That's not really the way it is. It is possible for something like this (these
two being related) to not appear on wikipedia, and it is also possible the
commenter is not able to come up with something interesting on google (maybe
he suspects he's not using the correct search terms).

~~~
mikestew
Well, then, just like Stack Overflow or anywhere else, tell us what you tried.
Otherwise, just like Stack Overflow or anywhere else, prepare to be mocked and
ridiculed. Because not only am I not a virtual assistant, I’m not psychic,
either.

~~~
yeukhon
But did I ask you specifically to answer that question? No. So you are not
obligated to answer. So perhaps you shouldn't accuse me for making you into a
virtual assistant. But you do have the right to downvote.

