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This image was lost some time after publication.

Venture capitalists often lose their investments. But not with a single court decision. And even less frequently over a case that was already pending when they invested. So it's been an embarrassing day for Greg McAdoo, a partner at Sequoia Capital, Silicon Valley's premier venture capital firm.

Two months before Sequoia Capital, and a couple other investors, funded a Web 2.0 startup called NetPickle, the founders were accused of intellectual property theft by their former employer. They operate a photo slideshow service called RockYou; Iconix said the idea was developed while the founders were employed there; and a U.S. district court judge yesterday ruled against the Sequoia portfolio company.

If the case continues to go this way, NetPickle could be forced to turn over revenue — ha, like a Web 2.0 app has revenue! Also, here's the key, the proceeds from stock sales made after the theft was deemed to have taken place. That's your money, Sequoia.

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Lawsuits over IP theft are common, this is just a preliminary injunction, and the court case isn't till next year. But one does wonder: why this liability wasn't flagged in the due diligence process earlier this year; and why a semiconductor industry veteran like McAdoo, even if he's desperate for an investment hit, is dabbling in flaky Web 2.0 companies.

The full story is on Private Equity Week, but behind some impenetrable registration wall.
Sequoia's RockYou jolted by injuction.

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