Case Study: Apple Tree Partners and Rigmora Holdings

The collapse of a high-stakes partnership between a prominent New York venture capital firm and a Russian billionaire’s family office had a Bay Area connection as shockwaves rippled through the Bay Area biotech scene. The fallout forced four promising startups into bankruptcy and exposed a critical "blind spot" in startup corporate governance: the risk of Limited Partner (LP) volatility.

As reported by SFGate and fiercebiotech, a fierce legal battle between Apple Tree Partners (ATP) and Rigmora Holdings (the family office of fertilizer mogul Dmitry Rybolovlev) has led to Chapter 11 filings for Initial Therapeutics, Apertor Pharmaceuticals, Nine Square Therapeutics, and Evercrisp Biosciences.

This case serves as a stark reminder for founders and boards: your company’s survival depends not just on your venture capital (VC) firm, but on the stability of the investors (LPs) behind that firm.

The Case Study: A Partnership Unraveled

For over a decade, Rybolovlev was the primary engine behind ATP, contributing more than $2.3 billion to fund startups tackling critical challenges from cancer, neurodegeneration to genetic diseases. However, around 2022 relationships soured with the rising geopolitical challenges.

ATP alleged that Rigmora initiated a "war of attrition" by withholding contractually obligated capital calls, resulting in a 70% reduction in staff across its portfolio companies. Rigmora countered that ATP’s management exhibited a "lack of probity" and filed for bankruptcy in the U.S. solely to forestall being removed as General Partner (GP) in Cayman Island courts.

While the legal tit for tat continues, the casualties are clear: four startups that were once well-capitalized are now insolvent because their primary source of funding became "toxic" or disinterested.

The Governance Risk: The Challenge of LP Volatility

Corporate governance usually focuses on the relationship between founders and their VC board members. However, the ATP/Rigmora saga highlights two deeper risks often overlooked during due diligence:

Concentration Risk: Many VC funds rely on a few "anchor" LPs. If that LP faces a liquidity crisis or legal trouble, the entire fund, and every startup it supports, is at risk. In ATP’s case, Rigmora provided nearly 99% of the capital.
The "Toxic LP" Sanctions Risk: Even if a startup is purely American, its association with LPs from countries subject to geopolitical challenges can trigger what Apple Tree’s director, Sean Harrison, called the "Russian effect." Other investors and lenders may refuse to participate in future rounds to avoid reputational damage or regulatory scrutiny, effectively trapping the company with its original, now-troubled funder.

Strategies for Companies Seeking Investment

For founders seeking to insulate their companies from LP-level drama, governance must extend to the "cap table behind the cap table."

LP Due Diligence is No Longer Optional: Founders should ask VCs about their LP base. Is the fund diversified? Does it rely on a single-family office? Are there exposure risks to politically sensitive jurisdictions?
Diverse Syndicate Composition: Avoid "party rounds" where every investor is tied to the same primary funder. Bringing in a diverse syndicate of VCs with different LP bases ensures that if one firm’s funding source dries up, others can lead a bridge round.
Protective Board Provisions: Ensure that the company's charter includes clear mechanisms for managing conflicts of interest. Board members (who owe a fiduciary duty to the company, not just their fund) must be empowered to seek the best solution for the company, such as outside capital, even if it dilutes the troubled incumbent.
Contingency Funding Plans: Companies in capital-intensive industries like biotech must maintain a "Plan B" for financing. This includes identifying alternative lenders or strategic partners early, before a crisis at the VC level makes the company "un-investable" to others. Ideally, they are also building relationships so they are not starting cold should the need to leverage these alternatives arise.

Conclusion

The bankruptcies of Initial, Apertor, Nine Square, and Evercrisp are a tragedy of governance as much as finance. They remind us that in the venture ecosystem, the stability of a startup is only as strong as the weakest link in the chain of capital. For the next generation of founders, "knowing your investor" must include knowing who is investing in them.

Below is a” Reverse Due Diligence” checklist and questions you may want to ask that should provide some insights into your potential VC

The LP Base & Concentration Risk

The most critical lesson from the Apple Tree Partners (ATP) case is that a VC is only as stable as its Limited Partners.

LP Diversity: How many LPs are in the current fund? (A "healthy" number is typically 20–40; fewer than 5 is a major concentration risk).
The "Anchor" Percentage: What percentage of the fund does the largest LP represent? If any single entity (like a family office) holds >25%, their personal or legal troubles can freeze your capital.
LP Type Mix: What is the ratio of Institutional Capital (Endowments/Pensions) to High-Net-Worth Individuals (HNWIs)? Institutional LPs are "patient capital" and less likely to default on capital calls.
Geopolitical Footprint: Are any major LPs based in jurisdictions currently facing - or likely to face - international sanctions or increased regulatory scrutiny?

Fund Lifecycle & "Follow-on" Reliability

A VC might like you today, but will they have the "dry powder" to support you tomorrow?

Reserve Strategy: What is the specific dollar amount reserved for follow-on rounds for this specific portfolio company?
Fund Vintage: Where is this fund in its lifecycle? (e.g., Year 2 of a 10-year fund is great; Year 8 means they are focused on exits, not support).
The "Zombie" Signal: When do you plan to raise your next fund? If the GP cannot answer this clearly, the current LPs may be signal-blocking future capital.

Governance & Control

Capital Call History: Has the fund ever had an LP fail to meet a capital call? If so, how was it handled?
LP Veto Rights: Do any LPs have "side letters" or veto power over specific investments or follow-on decisions?
"Pay-to-Play" Acceptance: Is the VC willing to include "pay-to-play" provisions in the term sheet that penalize them (or other investors) if they fail to participate in future rounds?