To be clear, this article isn't telling CEOs not to negotiate or seek competitive deals. It is about not backstabbing business partners.
Always Go Home with the Lady Who Brought you to the Dance
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Re: Always Go Home with the Lady Who Brought you to the Dance
#22This sounds way too much to me like a VC trying to teach startup founders a brand of ethics that mostly benefits VCs.
Nope. I was an entrepreneur for 10 years first. I always employed this mentality. Reputation matters.
Re: Always Go Home with the Lady Who Brought you to the Dance
#23To be clear, this article isn't telling CEOs not to negotiate or seek competitive deals. It is about not backstabbing business partners.
Thank you. I wish more people saw it that way. I always believe in negotiating / seeking competitive deals. But once you agree a deal with people you honor it.
Re: Always Go Home with the Lady Who Brought you to the Dance
#24What about ethical behaviour of the new VC in the last case? It's like the old VC did due diligence and the new VC "used" all that work without a shred of decency.
I think the "new VC" acted terribly.
Re: Always Go Home with the Lady Who Brought you to the Dance
#25Remember that VCs are motivated by returning a big return to their LPs first. It's nice to say that they'll stick with you but that could change in an instant. Plenty of stories out there where people have gotten screwed over by unscrupulous VCs. PS. obviously, there are exceptions to the norm but I'm a big believer in understanding people's primary motivations.
I definitely have never argued that all VCs are good or even that good VCs always act appropriately. That's for sure.
I think the key is knowing the parties with whom you're dealing and knowing their past behavior. I advocate reference checking portfolio companies that failed: see http://www.bothsidesofthetable.com/2010/02/08/how-do-you-ref...
Re: Always Go Home with the Lady Who Brought you to the Dance
#26To be clear, this article isn't telling CEOs not to negotiate or seek competitive deals. It is about not backstabbing business partners.
Thank you. I wish more people saw it that way. I always believe in negotiating / seeking competitive deals. But once you agree a deal with people you honor it.
To be more clear (and I came back to edit for more clarity and saw your reply that paralleled my ambiguous construction) it's about the VC (you) not backstabbing your coinvestor.
IF (and it isn't clear from my reading) the company didn't have signed papers with your first coinvestor, they are well within rights to drop the investor. But you have a responsibility to not abuse the trust the coinvestor gave you.
If the company, gets a better whole offer, good on them. But they can't chisel apart the first offer.
Re: Always Go Home with the Lady Who Brought you to the Dance
#27I used to think negotiations were simple - just come in with a reasonable, middle of the way set of terms, treat the counter-party as a reasonable, benevolent entity, and everything will work out all right. I quickly discovered that while there are some people who work this way, for the most part if you adopt this approach people will eat you alive. You won't even know what hit you. I'd use the "reasonable terms" pri…
his recent blog post on negotiations themselves: http://www.bothsidesofthetable.com/2012/02/11/the-end-of-the...
Re: Always Go Home with the Lady Who Brought you to the Dance
#28I used to think negotiations were simple - just come in with a reasonable, middle of the way set of terms, treat the counter-party as a reasonable, benevolent entity, and everything will work out all right. I quickly discovered that while there are some people who work this way, for the most part if you adopt this approach people will eat you alive. You won't even know what hit you. I'd use the "reasonable terms" pri…
Completely agree. A simple rule of thumb is to treat everyone as guilty till proven innocent. Proven innocent: close friends you'd trust with your children or your money, colleagues you've been through the crucible with (you know the measure of each other), YC and other small companies with a strong rep built over years and a simple management structure that isn't likely to be co-opted, etc. Gut feeling = wishful thi…
I disagree. I always trust people unless (or until) they've proven themselves untrustworthy. This may sound naive, but it's what works for my style of doing business, which hinges on mutual trust and almost over-the-top openness.
Here's what "guilty until proven innocent" misunderstands: without trust, the relationship is doomed regardless of whether the mistrust is justified or not. If I don't trust someone, I don't do business with them, period. And if I subscribed to your "simple rule," there would be practically nobody I could do business with.
Re: Always Go Home with the Lady Who Brought you to the Dance
#29Earlier quoted context omitted.
I don't know Mark Suster, and maybe I'm completely misreading this, but the whole story seems rather self-serving to me. His "ethical dilemma" was whether to agree to a deal changing in such a way that he would be paying 50% more... and when he said that no, he wasn't going to pay 50% more, we're supposed to accept this as a great triumph for ethics? I'm a great believer in behaving ethically, but this is not the sor…
Fair comment. I could see why it might come across that way. The impression I meant to leave was that I risked losing out on the deal all together because the CEO could have simply done the deal with the other investor. I would rather that have happened than to screw over the VC who convinced me to look at the deal in the first place.
Right, despite the example being a bit off I can see what you were trying to say.
It seems to me that this situation started when the company had a signed term sheet but still went around to VCs trying to interest them in investing. Is this normal? (I'm a bootstrapper, so I have no experience with these games.)
Re: Always Go Home with the Lady Who Brought you to the Dance
#30The fact of the matter we are all professionals and everyone's job is to protect their interests.
The CEO's job is to get the best deal for existing shareholders and optimize the growth. The investor's job is to buy in at the lowest price / strictest terms they can get away with. When a better deal comes along for the company and the investors cannot match it they start coming up with all sorts of phony excuses to buy in at the original lowball offer. If you feel strongly enough about the company don't be a cheapo and match the new offer. If "it does not fit the structure of your fund" then move on to the next deal.
Jeff Bezos walked away on the offer by Olympic Venture Partners (OVP) when Kleiner jumped in and outbid them big. I heard this in a talk by OVP partner who complained that John Doerr could make what he believed to be an "outrageous" offer because the fund already had Netscape IPO exit and could take much greater risk. Guess what, Jeff Bezos did the right thing for himself and his existing investors and employees.
VCs walk away on term sheets all the time and typical deal structures favor them anyways. The deal is done when the legal papers are signed and the check clears. Nobody should act as though they are entitled to anything, whether they are VCs or CEOs.