Amicable Split for Zivity and VC Investors

Two years after it grabbed the public's attention by securing $7 million in venture capital financing, Zivity, a social networking company that focuses on art nude photography, has voluntarily parted ways with much of its staff and capital. And, in a rarity when large amounts of cash are involved, everybody's walking away happy.

The reason for the split, according to Cyan Banister, Editor-in-Chief of Zivity and one of its founders, was that the site "clearly won't be a venture win on a short time scale." She maintains her confidence in the endeavor and believes that Zivity will be profitable soon, but continues, "It's going to grow organically, at its own pace." Meanwhile, competing projects within the company – notably the TopFans website and "War of the Roses" MySpace application – were beginning to receive more attention internally.

"Our people follow their passions," Banister told DailyFinance, which led to the development and growth of TopFans and "War of the Roses," which the board of directors believed more likely to result in the aggressive returns that venture investors hope to achieve. Banister described the effect as "Darwinian," with employees and the board voting with time and resources. This came at the expense of the original Zivity concept, which left her struggling to grow the business with shrinking resources.

To pursue the original business, Banister and the board of directors agreed that Zivity needed to be split from the rest of the company. Investors were given the opportunity to choose, effectively, which company they wanted to own. Most venture investors opted for TopFans, though Zivity retained many of its angel investors. Scott and Cyan Banister continue to own stakes in Zivity and will not have stakes in TopFans. "It wouldn't be fair to the other investors," Cyan said. "Since they had to choose between the two companies, we did, too."

Under the terms to which the Banisters and the board agreed, 75% of the $4 million in capital that Zivity currently holds (from an original $8 million in total funding) will go to TopFans, and Zivity will retain the balance – i.e., TopFans will take approximately $3 million and Zivity $1 million. Six of the company's nine employees are going to TopFans, with Banister and two others remaining at Zivity. Of course, all remain "friends and family."

"Venture capital investment is important," Banister says, "as we've seen in other deals we've participated in." She continues that she hopes venture investors will participate in future projects. But, for now, the Zivity Editor-in-Chief is happy to have the flexibility to grow the company at its own pace, rather than push it to meet the objectives of outside investors.

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