China's K2VC severs ties with spin-out over IP breach

The incident sheds light on the sometimes strained relations between GP spin-outs and their former parents. There are typically agreements as to what information a spin-out can use for marketing or other purposes and there is acute sensitivity about how track records and strategies are communicated to the investor community. However, the K2VC situation is unusual in that it has entered the public domain.

K2VC said in an open letter published on its Wechat account that it was shocked to learn three former employees had obtained confidential information on projects and violated its intellectual property rights. One of the former employees is Li Li, who was a managing partner at K2VC until she founded Next Capital in 2017. The other two are only identified by their surnames - Wang and Wu - but K2VC said both had worked for the firm for several years.

“It's impossible to describe how hurt our feelings were upon learning of the incident. We couldn’t believe that colleagues who had fought side by side with us would do something like this,” it added.

K2VC said it had settled the matter with Next. The spin-out published a statement on its Wechat account acknowledging and apologizing for the incident. As a result, K2VC will no longer be an LP in Next's funds and has ceased all cooperation with the firm. It has also withdrawn Li's rights to carried interest from funds she participated in at K2VC that are still in the investment stage.

In a more detailed account of the episode published by Next, the firm said Wu and Wang, who joined Next last year, had asked a K2VC IT technician, surnamed Zhang, for internal information about the firm’s projects. Li also admitted that she herself asked Zhang for information on some of K2VC’s projects after she left the firm. In addition, Next hired the company that developed K2VC's project management system to develop a similar platform. K2VC sees this as a breach of its IP rights. 

“I worked at K2VC for six years and the interactions I had with the firm after I quit had always been pleasant. But due to my weak understanding of the boundary between us and K2VC, and mismanagement of my own team, my behavior violated the agreement I signed with K2VC and also deeply hurt the feelings of my former colleagues and employer,” Li said.

K2VC was the result of a spin-out from Chinese VC firm Ceyuan Ventures in 2010 and a partnership with financial advisor China Renaissance. It currently manages multiple funds with over RMB3 billion in investments. The GP focuses on Series A and Pre-Series A rounds. Previous investments include online beauty platform Jumei.com, steel trading platform Zhaogang.com, installment payment business Fenqile, and artificial intelligence company Aibee.

Li joined K2VC in 2011 following a 10-year career as a business journalist. She raised a RMB400 million fund on founding Next, which makes angel and Series A investments. Check sizes are in the RMB3-30 million range. LPs reportedly include CITIC Capital and Chunxiao Capital, as well as several Chinese entrepreneurs.

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• Topics
• Greater China
• GPs
• Venture
• China
• K2VC