Reported Skype Settlement Sees Founders Taking Ownership Stake; Index Ventures Out

The battle between the founders of Skype, its current owners (eBay), and others who wish to own it will reportedly reach its end in a negotiated agreement.

So says the New York Times. Before the Times published its report, Om Malik also reported that a settlement might be in the works.

Several people briefed on the situation told the Times that the proposed settlement will be struck between a consortium of investors, who successfully bid for Skype in September, and the original founders of Skype — Niklas Zennstrom and Janus Friis — who filed a fusillade of lawsuits in an effort to derail the consortium’s $1.9-billion deal to buy 65 percent of Skype from eBay.

The settlement mooted by the Times’ sources would restructure the consortium buying Skype, with Zennstrom and Friis, who created Skype and sold it to eBay in 2005, taking a significant interest in the p2p communication company they founded. (Back in September, I wrote about a potential settlement along these very lines.)

Apparently withdrawing from the deal — doubtless at the strong insistence of Zennstrom and Friis — will be Index Ventures, a London-based venture capital firm whose partner, Mike Volpi, formerly served as CEO and chairman of Joost, a video-sharing firm also founded by Zennstrom and Friis.

This is where the tale gets tangled and sordid, and where it requires some expository backtracking.

A phalanx of intellectual-property disputes and lawsuits relating to software technology licensed to Skype by Joltid — a company controlled, again, by Zennstrom and Friis — was designed to prevent eBay from completing the $1.9-billion sale of a 65-percent interest in Skype to a group of investors that includes Index Ventures, private-equity firm Silver Lake, venture-capital firm Andreessen Horowitz, and the Canada Pension Plan Investment Board.

But there’s an additional subtext to this byzantine story. It involves Volpi, a former Cisco executive who was involved in a great many of the networking giant’s acquisitions through the late 90s and into the current decade. In 2007, Volpi left Cisco to take the helm at Joost, a video-sharing business built atop some of the same software technology that provided the p2p architectural foundations for Skype and Zennstrom and Friis’ earlier companies, including file-sharing trailblazer Kazaa.

What transpired at Joost is key to understanding the intense antagonism between the principals involved in the fight for Skype.

At some point, as Joost struggled to gain ground against established video-distribution websites, Volpi turned his attention to Skype. In February of this year, while he was serving as CEO and chairman of Joost, Volpi began email correspondence with Danny Rimer of Index Ventures — the VC firm Volpi would later join — regarding a scheme to take control of Skype in conjunction with private-equity firm SIlver Lake and others. To make matters worse, Volpi wrote the correspondence using his email account at Joost.

In a motion for a preliminary injunction as well as in a preceding lawsuit, Jotid and Joost accused Volpi of a veritable panoply of chicanery and outright malfeasance. Regarding the investment-consortium’s bid to take majority control of Skype, the plaintiffs charged that “the entire transaction is . . . . infected with Volpi’s misconduct.”

With Volpi having used his Joost account for email correspondence regarding Skype, the Joost and Joltid plaintiffs produced Volpi’s email messages and other documentation to support their injunction demands.

Not only did Volpi discuss a Skype takeover with his future colleague at Index Ventures while he was still at Joost, but Volpi also made critical, even disparaging, comments about prospective deal partners (including former Cisco colleague Charlie Giancarlo) and about his employers, Zennstrom and Friis.

Regarding Giancarlo, Volpi wrote:

“Charlie is a good guy, but not a superstar . . . . His core asset at Cisco is (sic) that he was much more inclined to say “yes” to John (Chambers, Cisco’s CEO) than I was.”

In those email messages, Volpi also discussed how Skype could change its underlying software architecture to obviate the intellectual-property claims related to Joltid and its p2p software.

The entire saga may have done irreparable damage to Volpi’s previously stellar professional reputation. In a column published originally on October 31, the San Jose Mercury News’ Chris O’Brien wrote:

Even if we give Volpi the benefit of the doubt and assume he prevails on the legal issues, his actions and behavior are likely to put a considerable dent in his reputation. It may be hard to predict who will be the winner in these legal cases, but it’s clear that Volpi is the early loser.

If the New York Times report proves accurate, the epilogue of this story will be worth following.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s