Technology Crosser Ventures (TCV), LP, is a venture capital fund that invests as a limited partner in technology companies that require an infusion of capital.

Among the partners are Testler, Hoag, and Kimball. One of the companies they invested in was Spree.com. The partnership was structured to allow Spree, a corporation, to be the general partner with TCV as the limited partner. As part of the partnership agreement, Testler would represent TCV as a member of the board of directors of Spree.com. On August 24, 2000, the Wall Street Journal reported a story about TCV and its partners that depicted Testler, Hoag, and Kimball discussing their investments at Testler’s office. The paper quoted Testler saying, “What do we want to do with this puppy? The cash runs out soon.” Hoag then asked, “They’re going to be looking at us for more capital, aren’t they?”

Kimball added, “I don’t want to be supporting them until who knows when.”

The three men were talking about Spree.com. Spree became insolvent (unable to pay bills as they became due) not long after the article appeared. Spree sued TCV, arguing that the article made it impossible for the company to get more investors. Spree sued Testler for breach of loyalty and due care.

CASE QUESTIONS

1. Who prevails and why?
2. Does this case show potential problems with venture capital firms as limited partners?
3. Was TCV in “control” of Spree.com because it held the purse strings?