Founder was cheated by the VC fund – at least in his mind. His trust had been let down. This happened when there was a chance to sell the company. Founder believed that it could still grow significantly, the fund had a different perception – to put it mildly, it had already lost faith. For the investor the deal was profitable – the capital was returned with a good multiplier – for the founder it was much worse, because what was left after deducting liq prefa was not what he had been fighting for years. The fund had every right to make this decision, and what’s more, it had the appropriate corporate powers in the agreement that allowed the transaction without the founder’s consent. It therefore took advantage of a provision that both parties had agreed to when negotiating. How to interpret this? Quite simply: both the fund and the founders want the value of the company to grow and together they strive to achieve this. However, it is not uncommon for a situation to arise in which a decision has to be made that puts one of the parties at a disadvantage. This is the moment when founders realize that at the end of the day:
Venture capital funds and start-ups are not one, but two sides of the barricade.
It’s brutal, but it’s true, and you have to be aware of it from the very beginning. Yes, you pursue a common goal, you work together, the VC supports the start-up in many areas, and a natural symbiosis emerges. However, there are many moments in which it is clear that each party has its own interests, which is natural. There is no room for fiction. This is a relationship between a company and an investor, with a number of benefits, but also a number of burdens. Not every situation can be solved using the win-win formula. Sometimes you have to make a choice who will benefit more from a given situation, but you also have to remember that VC has obligations to investors. Therefore, it cannot act to their detriment, because it may end badly for managers. The relationship with the fund should be, above all, professional and structured, but also conscious. It is therefore good to have the support of an investor, but at the same time one must be aware that he is not a disinterested friend who will always put our welfare first. At the end of the day, this is a business where you have to make money and it is impossible to find a compromise that will be equally satisfying for everyone in every situation.
A good VC does everything to help and support founders in every possible field and always tries to be “founder friendly”. However, you have to remember that not always the interests will be aligned. This is a fair approach.
Translation: Krzysztof Kowalski