This post is by Jeff Carter from Points and Figures
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A lot of the time we point to deals getting screwed up and Harvard Business School writes a case about some entrepreneur somewhere that made the wrong decision or didn’t execute and blame for failure gets delivered upon them.
Often times, this is the case. But, not always.
Sometimes a VC firm will totally screw up a deal because they don’t have the company’s best interest at heart. They are only concerned with themselves. One of the things we have been very cognizant of as we build out our fund is to be very transparent with entrepreneurs. In some cases, they don’t like the transparency. It chafes on them. But, while we might be incorrect it’s the way we see it.
I have always been transparent. It comes from my time on the floor and the time I spent at USAFA. I probably share too much. It can be used you and it has been used against me. I do this because I like it. I don’t do it because I have to. I could hang it up and walk away now. When you run into schmucks on the investing side, it sure makes you scratch your head.
There are VC’s out there to follow and pursue to have on your cap table. Jason Mendelson and Brad Feld are two. They have impeccable ethics. They wrote a book Venture Deals and I encourage every entrepreneur to read it. Questions you might ask will force VCs to be transparent. It might help you separate the wheat from the chaff and build the relationship you want with a VC. It’s important that you do as much diligence on the VC as they do on you.
When VC’s don’t have an entrepreneur or company’s best interest at heart, they will make decisions that totally screw up a deal. In the process they screw other investors, but more importantly the employees and the families of the employees of that company. Often, they get a charge out of it. When they enter a deal, they are not looking out in the best interest of anyone and when they read the legalese their only focus is on how they can use it to give themselves an edge. There are VC’s that I will not send deals to, co-invest with, because they screw up deals. They do a good job of masquerading until the truth comes out. You’d be better of having Dracula as an investor.
When we were on the trading floor, we used to run people like that out on a rail. Much harder to do in VC.