31–40 of 50 posts
Best of luck!
You failed to negotiate effectively with your VC. At this point, you should explain to your VC (hopefully he is your only one) that you intend to: (1) wind down the business, layoff all staff, pay off all debtors and cease all company operations. And (2), without soliciting any employees or infringing on any IP, you intend to reconstitute a new company in the X space where X is your current business. Explain how it w…
You need to work through with your lawyer and ask him or her in great detail what options you have in terms of forcing the VC to cooperate. Can you wind up the company without his/her agreement? What non-compete clauses apply? Can they be worked around?
Do you have the right to make a share issue in a way that would dilute the VC below a control threshold (while satisfying all legal and fiduciary obligations)?
Others in this thread have suggested you 'out' the VC - do not do this without legal advice, and I would recommend you not do it at all. You need to be 100% in compliance with the law of libel etc. Even if a staff member leaks information without your consent that places you in a weaker position not a stronger position.
If you have strong options, then pursue them. This may lead to the VC showing willingness to compromise. In which case, do genuinely consider compromise.
Have you considered the possibility that he is having serious trouble in his personal life - perhaps financial or relationship trouble?
His recent behaviour does sound dodgy but in common with how people react when they are facing serious personal issues. It could also be that someone else is putting pressure on him in regards to this deal.
You may want to approach him sympathetically to see if that could be the case.
The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to participate in a future round makes both liquidity and fundraising impossible. Perhaps he plans to drive the company to the brink and then do a down round. The only leverage you have over him is the damage his behavior, if public, could do to his reputation - since…
What I think is actually happening here is the VC is playing what is called a game of chicken in game theory (http://en.wikipedia.org/wiki/Game_of_Chicken) to try to get more than their rightful share of the deal. A game of chicken is where if one player gives up first, the player who gives up loses a small amount, and the other player gains a small amount. If neither player gives up, they both lose a large amount. The VC wants you to give them more, by forcing you to choose between doing what they want, or hurting both yourself and them by completely destroying value in the company.
Strategically, you now need to either capitulate to what they want, convince them that you won't back down (if they are convinced you won't back down no matter what, it is in their interests to back down and let the next acquisition opportunity go ahead), or find a way to stop them blocking acquisition.
I think of VCs as managers, and I'm usually of the opinion that the most likely solution to a bad manager is a new job, so I'm inclined to favor any path away from this guy. What path would be best?
Having a profitable company with 10+ employees is a pretty good position to be in if you want to launch something new. I'm inclined to recommend making full use of that opportunity, whether new equity from this VC is a possibility or not. Another concern, though, is that you don't want to risk the health of the company by diverting too much of the available cashflow, or by hurting their market positioning. So it seems to me that any pivot is going to have to be a soft one, or else you'll have to find a growth or new opportunity that really does seem like a sure bet. So my recommendations are: 1) Swallow your well-justified bitterness. It just won't help you get through this. If you want to spread truth about this VCs character, do it after you have gotten out of the current stickiness, and even then I think some coded politeness can suffice. 2) Tell the VC that you're going to double-down on finding new growth opportunities. Lay it on thick, and check in more frequently to give him backing with his peers. 3) Assume that the VC will talk smack (widely) about you if ever challenged in any public context, and may be doing so anyway now that this deal exploded, so be proactive about working your relationships with his peers and your peer community. Consider this your ongoing side project as you... 4) Work on finding the right pivot for you and for the company. Consider this your top priority. If you find another startup that has a better opportunity that you can jump to, take it. But don't risk your current profitable status. Tipping into negative cashflow will endanger the whole situation but will also give the VC more ammunition in laying blame on you.
I can provide no advice based on experience but since the acquisition offer has been revoked, I would suggest for next time to do the following calculus:
In one year, if I agree to his terms, will I /really/ be that much worse off? Will I be so poor?
If not, agree with a stipulation that it is to be completed within X timeframe otherwise they get the old share.
If so, be prepared to lose it all.
9/10 times, you're usually better off capitulating and making sure all your friends know NOT to deal with this guy.
Anyway, good luck.
The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to participate in a future round makes both liquidity and fundraising impossible. Perhaps he plans to drive the company to the brink and then do a down round. The only leverage you have over him is the damage his behavior, if public, could do to his reputation - since…
The down round theory doesn't really make sense. Let's say you own x% of a $y car, but you have the power to crash it and write it off (at which point it is worth $z for parts, z Before the crash and down round, your interest is worth $(y * x/100). After the crash, your interest is worth $z * (x + d)/100%, but you have to pay an additional d%/100% * $z. Therefore, the crash and down round changes your wealth by $z *…
The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to participate in a future round makes both liquidity and fundraising impossible. Perhaps he plans to drive the company to the brink and then do a down round. The only leverage you have over him is the damage his behavior, if public, could do to his reputation - since…
Thank you for the analysis, I appreciate the clarity with which you describe his confusing behavior. It might be that he has such plans. As for taking the conflict public, I don't have it in me. It is not something that aligns with my world view because I know that I too can be wrong sometimes and not see the whole story. I prefer that people know they can trust me rather than applying that kind of leverage.
The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to participate in a future round makes both liquidity and fundraising impossible. Perhaps he plans to drive the company to the brink and then do a down round. The only leverage you have over him is the damage his behavior, if public, could do to his reputation - since…
Thank you for the analysis, I appreciate the clarity with which you describe his confusing behavior. It might be that he has such plans. As for taking the conflict public, I don't have it in me. It is not something that aligns with my world view because I know that I too can be wrong sometimes and not see the whole story. I prefer that people know they can trust me rather than applying that kind of leverage.
When seeking revenge, bring two shovels and all that.