61–70 of 90 posts
Two differing thoughts: I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time. What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing ou…
Let's not forget every day some entrepreneur goes in to pitch an idea, and a VC picks up the phone and calls a portfolio company and says "hey I have an idea for you."
"VCs will steal your idea and launch it themselves" is not a real risk, especially relative to existing risks.
The issue of VCs launching their own ideas is purely between them and their LPs - if CALPERS is ok with it, then there's no issue.
Two differing thoughts: I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time. What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing ou…
It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.
The best ideas are often borne out of the conviction of the founders and their ability to spot an untapped need.
Because of this, founders (and progenitors of the original idea) are often true believers... and they will execute harder and with more conviction (even if less effectively at first), because it was their idea in the first place.
They'll often have better reactions and can better see where the market is going, because it was their idea in the first place.
Depending on their personality, they may also be better able to conceive of and implement improvements, because it was their idea in the first place.
Execution is critically important, but one cannot exist without the other.
Earlier quoted context omitted.
It sounds like you're defending a particular scenario that I'm not understanding. Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
Every VC firm has different interests from the firms that it invests in. That's the major pitfall of accepting investor money, their goals and your goals will never be perfectly aligned and sometimes are very much not aligned. Beware of who you accept money from, especially if that money comes with strings attached (board seats, various preferences and so on).
This is the distinction my initial comment sought to clarify -- in bootstrapping (as I understand it) a company is funding itself so there is only one party and hence no conflict of interest. When a VC firm funds one of the partners, there might be. Given the particular circumstances this may or may not be problematic.
Would you agree further that it might be wise for VC firms to have clear conflict of interest policies in the same ways it is wise for VC firms and companies in general to have clear HR policies?
Any investment group, upon hearing a pitch, will do one of three things; a) ignore it, b) figure out how to leverage the new information in existing pitches/plans, c) fund it. To even get a pitch in front of an investment group takes a lot of networking to begin with, so the reality is by the time you pitch, you're probably already an "insider" of sorts. As an as-yet-successful entrepreneur, you should know that at a…
Another thing in addition to this - you need to out-execute future competitors. Imagine that the idea is public anyway, and build it better than anyone else could.
In a private company, like Andreessen Horowitz, they are effectively spending their own money. If they choose to invest in a company founded by one of their partners, I do not see the conflict of interest. From the outside we may question whether or not the startup is really worthy of being funded, but it really isn't our call to make.
But what if it was our call to make? Did they make a bad decision by funding one of their own? Looking at his track record he already has experience as a co-founder and a CTO. On top of having prior experience, he has worked as a partner at Andreessen Horowitz for over a year. The people making the decision whether or not to fund his startup have experience working with him. They probably have a good idea of whether this person can or cannot deliver.
I think most people object to this, because they imagine a situation where a better startup is not funded because the partners decided to fund their buddy instead. Let us say that is true. For the sake of argument, assume this guy is incompetent and should not be given funding. Imagine this guy worked at Andreessen Horowitz for over a year and everyone knew he was incompetent, but decided to fund him anyways just because they were BFFs.
I guess it is possible something like this happened, but I doubt it. I recently finished reading Horowitz’s book The Hard Thing about Hard Things and he doesn’t seem like the type of person who keeps incompetent people around just because likes them.
The only valid objection I see is if they are using information provided to them under a non-disclosure agreement to gain unfair advantage. But is this a valid concern? As others have pointed out, most ideas are cheap. Even if that information provides some short-term advantage, it won’t help in the long-term as the market changes.
Earlier quoted context omitted.
Bootstrapping is not a conflict of interest. When people are operating as both VCs and executives there are conflict of interest considerations. Situations involving conflicts of interests are not inherently unethical, but greater care is needed.
How can it be a conflict of interest if it is in the end their own money ? They get to spend it any way they want it and of course they will spend it on those that they know better more readily than elsewhere. It's not as if VCs are distributing public funds and those VCs that have taken public funds (or pension funds) would likely never engage in a deal like this. If you think you're 'in competition' with the VCs pa…
Earlier quoted context omitted.
It sounds like you're defending a particular scenario that I'm not understanding. Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
This conflict is nothing new and is inherent to the model of organized private investors picking companies to invest in. The exact same problem emerges when an investor decides to invest in a portfolio competitor, or invests in a company that pivots to that role. It's why startups are antsy about who they allow to hold board seats.
We're in agreement here.
Because this comes up in practice there are a slew of reasonable ways to deal with these sorts of scenarios. I think the original article's "what do we do about it" section falls nicely into this discussion.
I think the extent of my position here is that VC firms are at a heightened risk of dealing with this type of conflict of interest problem, and would be well served by having clear policies on how they resolve them.
edit:grammar
Two differing thoughts: I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time. What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing ou…
It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.
Unless you make an SMS based concierge service and call it Magic
As long as the money is private, they should be able to do whatever they want. If they're actually bad decisions (a worse startup getting money solely due to being inside), then they'll suffer for it. If the decision however gives a return, then what's the problem? I don't feel suspicious of family's investing in their kid's venture -- wow how unfair! so biased, they should have given the kid next door a fair listeni…
> I don't feel suspicious of family's investing in their kid's venture -- wow how unfair! so biased, they should have given the kid next door a fair listening to as well! someone a while back made the case that SV is an offset economy where instead of CEOs you have VCs, and instead of Managers you have Startup CEOs. Keeping the vague analogy in mind, how is flooding your kids with easy credit not available to other p…