Conflicts of interest between startups and VCs

I’ve been lucky to have superb VCs invest in Seeking Alpha. They’ve brought us many things, including candidates for senior positions, help with fundraising, and bus dev introductions. One of the things that’s helped me to maximize my relationship with them is understanding when our interests diverge. Here are two examples:

  1. Different levels of risk aversion. VCs have a portfolio of companies. To tip the returns of an entire fund, they need big wins. So it’s in their interest to push their portfolio companies to swing for the fences, even if that means raising the risk of failure. If it works but you need more capital, they’ll be happy to invest more. If you fail and run out of money, they’ll pull the plug. In contrast, founder and employees don’t have a portfolio of companies or a portfolio of jobs. This is your only one. So your evaluation of outsized risks is different.
  2. Different value placed on PR. VCs rightly care about their brand, which is strongly impacted by association with successful companies with “buzz”. For VCs, “buzz” may mean coverage on sites read by entrepreneurs and other VCs. This helps VCs attract deal flow, LP participation in follow on funds, and perhaps provides peer validation. But for entrepreneurs, you may not care because (1) your customers and potential customers might not read those sites, (2) even if they do, there may be far more cost effective ways of reaching them, and (3) you might fall into the trap of the spotlight effect.

3 thoughts on “Conflicts of interest between startups and VCs

  1. Pingback: Why your VCs want you to raise a large round | A Founder's Notebook

  2. Pingback: Being “hot” | A Founder's Notebook

  3. Pingback: Can trust between VCs and founders outweigh conflicts of interest? | A Founder's Notebook

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