This image was lost some time after publication.

Cuddly David Sze of Greylock Partners is the star VC of Web 2.0, with investments in Digg and Facebook among his portfolio. But he has a skeleton in his investing closet, a tipster says: An online-marketing firm called SoftCoin. Valassis, the coupon-distribution giant responsible for those hated inserts in newspapers, scotched an acquisition deal at the last minute, a tipster tells us, prompting heavy layoffs at SoftCoin. Venture capitalists get antsy about holding onto companies for too long, since they need to wind up their funds and return the proceeds to investors over time. Sze invested in SoftCoin in 2002. If SoftCoin goes under, will Sze's sunny disposition take a blow? Unlikely; we fully expect Sze to continue talking up his board-observer seat at Facebook. The tip:

Word is running rampant throughout the company that a supposed buyout of SoftCoin by Valassis was nixed at the 11th hour. In an emergency effort to conserve cash, management has slashed ranks, cutting the sales team in half, including the President (i.e. VP of Sales), Tim Ruppert. Several key account management folks were also victims of last week's layoff, all without a dime of severence.

David Sze, the Greylock star web 2.0 VC has been quietly funding SoftCoin for 6 years and holds the catbird seat on SoftCoin's board. In an effort to save face, a pennies-on-the-dollar recovery is all Sze and his Greylock brothers can possibly hope for.

Communication throughout the company is nonexistent, but is par for the course for this unproven CEO (Robert Drescher). Will SoftCoin find another qualified suitor to save it from its slow and unfortunate fall into oblivion? Or will the company continue to run on fumes and beat the odds as it has for the past 8 years?