Porsche’s venture arm invested in a startup automotive company with the optionality to kill it. And Porsche allegedly did.
In Zync, Inc. v. Porsche Investments Management, S.A., et al., decided on May 29, 2026, Vice Chancellor Laster rejected Porsche’s bid to dismiss the case against it as a matter of law.
Porsche, through its investment arm, entered into a convertible note in 2020 with Zync, who held a cloud-based in-vehicle entertainment platform that Porsche and its competitors could exploit. In the investor rights agreement that accompanied the convertible note, Porsche, via its director designee, had wide and expansive blocking rights over any amendment to the certificate of incorporation, issuing debt, and issuing equity.
While some of these terms are similar to preferred protective provisions for VC investments, standardized in NVCA model legal documents, there are three key differences: 1) VCs are more aligned with startups since they want to grow these companies and help them go to market, 2) protective provisions typically require a threshold percentage of that entire class to veto a specific company action, and 3) unlimited veto approval over funding is not typically not given to a single board member. Plaintiff Zync alleges that Porsche’s designated director stalled, frustrated, and voted against virtually every funding opportunity that came Zync’s way, to the point where Zync shut down in 2022. Zync’s only remaining option was to sue. In the present opinion dismissing Porsche’s attempt to dismiss the case as a matter of law, the court noted:
“[Zync’s CEO] has since learned that the Company’s experience was not unique. She believes that Porsche employs a “catch and kill” investment strategy that involves making a seed investment in a startup in return for governance rights, then using the governance rights to block other sources of capital. By making the startup dependent on Porsche, Porsche gains control of its new and potentially disruptive technology. If Porsche wants to deploy the technology, it can. If not, Porsche can force the startup to shut down, while maintaining control over its intellectual property.”
Corporate venture capital (CVC) can accelerate the funding timeline for startups, while the corporate investor provides valuable strategic advice. This was Zync’s undoubted allure of the Porsche investment. That said, Zync erred in providing expansive blocking rights to Porsche rather than simple pooled voting rights that would have only required a threshold vote of the shareholders and majority vote of the board. The board was locked up by Porsche’s veto power; Porsche effectively kept the company in neutral until it crashed.
Jerome Fogel is co-founder of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies, including representation in mergers and acquisitions.
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