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Conflicted Capital

blog.aaronkharris.com

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Re: Conflicted Capital

#31

Post by stanrivers »

908B64B197 wrote: post #19
stanrivers wrote: post #11

Everyone has their own incentives and when things get tough, they will work to maximize what their incentives say should be maximized - keep that in mind before signing up with investors if you are a founder. The term sheets and final docs - and the specific rights in them - matter a lot. Examples from Charlie Munger [1]: "One of my favorite cases about the power of incentives is the Federal Express case. The heart a…

In Xerox case, it was the same company that wouldn't enter the personal computing market because it might impact their copy-machine market.

I've seen that happen in hiring decisions as well. Junior people are in charge of screening candidates... really strong candidates, if hired, will make the average employee look bad.

So, why should the person screening the candidates suggest the strongest candidates?

This is why I tend to suggest equal seniority individuals should not screen candidates. It's a subconscious thing ("He's too aggressive" "She seems like not a good culture fit" "He is too senior for this role") that most people don't think of directly, but happens.

Re: Conflicted Capital

#32

Post by stanrivers »

rsweeney21 wrote: post #15
stanrivers wrote: post #8

Earlier quoted context omitted.

This is not cool - I am sorry. Investor here - they should never do that. Make sure you tell others about how this went down. If they were planning on getting rid of you, that needs to be part of the upfront discussion etc.

They are a large and very lawsuit happy VC. It's not worth the risk to warn other people about this VC.

Yeah - I more mean... don't go out there and go out of your way to advertise that they did this.

But founders should talk to other founders about their experience with different investors. The good, the bad and the ugly.

In those situations, you can make it clear - in objective terms - what happened and why you would not take money from them again. Don't call them names or anything.

Re: Conflicted Capital

#33

Post by ganzuul »

Isn't the purpose of financial instruments to resolve these kinds of conflicts? Seems like in the days of smart contracts these meatspace concerns could be coded around.

Re: Conflicted Capital

#34

Post by throwaway9172 »

covidthrow wrote: post #25
rsweeney21 wrote: post #15

Earlier quoted context omitted.

They are a large and very lawsuit happy VC. It's not worth the risk to warn other people about this VC.

It would be a shame if someone else created a throwaway account to express similar sentiment about a similar firm and named them.

It doesn't take a lot of insight to look at the crunchbase of OP's former company and look who lead the series A...

Re: Conflicted Capital

#35

Post by Cederfjard »

mbesto wrote: post #10

> In fact, the vast majority of the investors I’ve met, even those that have fired founders, are good people. It’s deeper than that, even. Investors mostly want to do the right thing for founders. There are emotional and business reasons for this impulse, but ultimately the fiduciary responsibility has to win. Founders need to understand that venture investing is a business where friendship is an input or an outcome,…

These are humans, after all. It seems unlikely that all of them should be unscrupulous, fundamentally dishonest, profit-maximizing robots who only exhibit benevolent traits as a charade to lure in entrepreneurs. Surely some are simply good people.

Re: Conflicted Capital

#36

Post by Comevius »

Investors for software startups are not that great if you want your business to be self-sustaining without becoming a unicorn or a Ponzi scheme.

I'm not saying that participating in bubbles cannot be economically rational, but venture capital today is especially suited for making decisions that are bad for everyone involved, prioritizing future valuation over good business.

It's the same growth or sustainability choice we keep failing at as a civilization.

Re: Conflicted Capital

#37

Post by [deleted] »

Cederfjard wrote: post #35
mbesto wrote: post #10

> In fact, the vast majority of the investors I’ve met, even those that have fired founders, are good people. It’s deeper than that, even. Investors mostly want to do the right thing for founders. There are emotional and business reasons for this impulse, but ultimately the fiduciary responsibility has to win. Founders need to understand that venture investing is a business where friendship is an input or an outcome,…

These are humans, after all. It seems unlikely that all of them should be unscrupulous, fundamentally dishonest, profit-maximizing robots who only exhibit benevolent traits as a charade to lure in entrepreneurs. Surely some are simply good people.

[deleted]

Re: Conflicted Capital

#38

Post by fractionalhare »

vcvc wrote: post #17
rsweeney21 wrote: post #5

Raised money from VCs for my last startup. Series A investor made all sorts of overtures about how founder friendly they were and how supportive they would be. The week after we closed our series A they told me I had to hire a COO. I asked, "You trying to get me to hire my replacement?" "No, we'd never do that. How could you even think that?" Less than two months after we hired the COO they fired me. The COO was made…

What VC?

Insight Partners. They evidently led the Series A for OP's last startup, which according to their LinkedIn is Numetric. Crunchbase tells you what you need to know: https://www.crunchbase.com/funding_round/numetric-series-a--...

Re: Conflicted Capital

#39

Post by fractionalhare »

stanrivers wrote: post #8
rsweeney21 wrote: post #5

Raised money from VCs for my last startup. Series A investor made all sorts of overtures about how founder friendly they were and how supportive they would be. The week after we closed our series A they told me I had to hire a COO. I asked, "You trying to get me to hire my replacement?" "No, we'd never do that. How could you even think that?" Less than two months after we hired the COO they fired me. The COO was made…

This is not cool - I am sorry. Investor here - they should never do that. Make sure you tell others about how this went down. If they were planning on getting rid of you, that needs to be part of the upfront discussion etc.

It was evidently Insight Partners. They led the Series A on OP's last startup: Insight Partners. They evidently led the Series A for OP's last startup, which according to their LinkedIn is Numetric. Crunchbase tells you what you need to know: https://www.crunchbase.com/funding_round/numetric-series-a--...

Re: Conflicted Capital

#40

Post by kenneth »

I strongly disagree with the premise that a founder should keep "internals" at arms length and run a process without them to avoid any pressure from internals to lead and somehow maximize terms.

Your existing investors have a vested interest in making you successful. A higher valuation is more acceptable to them than to outsiders (due to being able to officially mark up their investment, which helps them raise their next funds and improve their apparent performance prior to liquidity). Founders also have a far better idea of what kind of support they can expect from an existing investor than a newcomer.

Of course, as a seed stage investor, I am biased in my views on this. But I do really believe that making potential adversaries out of your existing investors is a deep mistake.

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