It’s the dream of entrepreneurs to sell their company for millions of dollars. But the dirty secret of venture capital is that the dream can be dashed as the venture capitalists make millions in a sale, leaving the founders with nothing.
A recent Delaware court case arising from the 2011 sale of Bloodhound Technologies illustrates how this happens.
Bloodhound was founded in the mid-1990s by Joseph A. Carsanaro to create fraud-monitoring software for health care claims. After several years of going it alone with a handful of colleagues, Mr. Carsanaro was able to raise Bloodhound’s first venture capital round for $1.9 million in 1999, followed by a second $3.1 million round in 2000.
When the Internet bubble burst, the company underwent rocky times. It was then that the venture capitalists seized control. Mr. Carsanaro was pushed out as chief executive. By 2000, he was gone from the company, as were four other members of his founding team.