When Sarah Lacy interviewed Spark Capital partner Bijan Sabet about the danger of venture capital firms investing in similar companies, she indirectly found out about some drama between Tumblr and BNTER after doing some follow-up investigation. Lacy found out from three sources that Spark Capital had reneged on a term sheet that was offered to BNTER, a start-up based in New York founded by Lauren Leto.
Backing out of the deal with BNTER angered angel investors Chris Dixon and Ron Conway, who was also investing in BNTER. Spark principal Andrew Parker reached out to Leto last December after being impressed by the company’s messaging product. At the time, BNTER was a two-person company. Leto pitched the company to Spark in Boston and negotiations carried on for several months.
In March, Spark Capital had faxed Leto a termsheet saying that it wasn’t signed because the partner could not get their hands on a fax machine, but said it was a done deal. After Spark checked in with Tumblr founder David Karp to see if he considers BNTER as a competitor, he said yes. Karp red-lighted Spark’s investment in BNTER because he believed they were direct competitors.
Spark did not end up sending the $2 million investment and they refused to pay a $200,000 break up fee. Thinking the deal was done, BNTER started to ramp up their company by hiring an Android developer. To make ends meet, Leto decided to cut her salary down to zero. Leto is a co-founder in Texts From Last Night (TFLN) and is a new college grad of Michigan State University.