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led the $20 million Series A round for buzzy photo-sharing app just last month. Now, the venture capital firm is cutting all ties with the company co-founded by popular YouTuber .

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Spark Capital鈥檚 announcement on Sunday came after last week against a former member of Dobrik鈥檚 鈥淰log Squad,鈥� a group that makes videos together and posts them on YouTube. While Dobrik himself is not accused of sexual assault, he provides the voiceover for at least part of the video in which the alleged sexual assault takes place and it was posted to his YouTube channel, according to Insider鈥檚 report.聽

Dobrik stepped down from the board of Dispo, reported Monday morning, and . Several brands, including and , also dropped sponsorships with the YouTube star.

Spark Capital on Sunday night that it would 鈥渟ever all ties鈥� with Dispo. The investment firm added that it stepped down from the company鈥檚 board and would make 鈥渁rrangements to make sure we do not profit from our recent investment in Dispo.鈥� The move was applauded by some investors, founders and tech workers online as the right thing to do. It鈥檚 also highly unprecedented.聽

Spark Capital did not respond to a request for more information from 附近上门 News about how it would unwind its investment in Dispo.聽

Spark鈥檚 investment in Dispo was likely a Regulation D private offering, meaning it was a private sale of shares, according to Stephen Diamond, an associate professor of law at , who teaches corporate finance and securities law.聽

鈥淭he only way to exit this situation is to shut down the company or to sell the shares to someone,鈥� Diamond said. 鈥淪o those are the two options. It appears they鈥檙e talking about some sort of secondary sales and there is an active market for shares in private companies, sometimes called the secondaries market or the private resales market. To (not) profit off it, they would presumably sell at the price no higher than they bought the sales.鈥�

So, to disassociate itself from the company, Spark would have to step down from Dispo鈥檚 board of directors (which the firm said it did), and sell its shares for no higher than the purchase price, Diamond said. But the VC firm could run into issues finding a buyer, given the controversy.

鈥淭here鈥檚 not much Spark can do if they can鈥檛 find a willing buyer,鈥� Diamond said. 鈥淥ther than that, it鈥檚 possible there’s some repurchase right or quit right in their shares, but that鈥檚 not likely.鈥�

Other early backers of Dispo have spoken out following Insider鈥檚 report on the sexual assault allegations. tweeted that it was 鈥渋n support of the (company鈥檚) decision to part ways with David and will continue to monitor the situation closely.鈥�

, which led Dispo鈥檚 $4 million seed round in October 2020, said that it supported the company鈥檚 decision to part ways with Dobrik, and would donate any profits from the firm鈥檚 investment in the company to an organization that works with survivors of sexual assault. It added that it would continue working with the Dispo team.

CEO said Tuesday he was pulling out of all future investments in Dispo, and would donate any profit from his investment in Dispo鈥檚 seed round to organizations that support survivors of sexual assault, according to .

附近上门 News has reached out to Unshackled Ventures, Seven Seven Six and Ting for further comment, and we鈥檒l update this story if and when we hear back.

For a venture firm like Spark Capital to sever ties with a portfolio company is something of a 鈥渂lack swan event,鈥� according to Diamond. It鈥檚 far more typical for a VC firm that isn鈥檛 happy with an investment to simply stop putting money into a startup or perhaps sell off shares. Of course, the situation with Dobrik and Dispo goes beyond the typical reasons a VC might want to write off an investment, like a founder over-promising results or the market for a product changing, for example.

Now, the question is if Dispo can survive without its ties to Dobrik, Diamond said Monday. Often, for small, early-stage startups there鈥檚 little separation between the identities of the company and a founder. And since Dispo didn鈥檛 exactly pioneer a revolutionary technology 鈥� it鈥檚 an app that mimics disposable camera technology 鈥� it鈥檚 unclear if the intellectual property has value separate from the brand of its famous founder. It鈥檚 also unclear how many shares of Dispo that Dobrik still holds. So while his separation from the company may solve an immediate image problem, he could still have some power, Diamond said.

鈥淚f you have bad behavior by a CEO or another senior figure on a company board, often there are different pathways to separate that individual from the company so employees, others aren鈥檛 impacted,鈥� Diamond said. 鈥淏ut companies at this early stage are typically indistinguishable from the key founders. So there may not be enough of a separation between the company and Dobrik.鈥�

Perhaps one of the most well-known cases of a senior figure at a tech company stepping down so the business could move forward was . Then-CEO was forced out by the board of directors after the company鈥檚 culture drew scrutiny. Kalanick was replaced by former CEO , and the company went public in 2019.聽

In Spark Capital鈥檚 case, cutting ties with the company was the right move both morally and in terms of reputation management, according to Jason Sherman, president and founder of . The incident in question is linked to Dobrik, and shows bad judgment on his part. And while Spark Capital could likely still be successful even if it didn鈥檛 disassociate from Dobrik, it would make it difficult to hire people with 鈥渟trong moral compasses,鈥� Sherman said.

鈥淚 think it was the right thing for their investment, for their reputation, and for their hiring,鈥� Sherman said.

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