
Always Go Home with the Lady Who Brought you to the Dance - ssclafani
http://www.bothsidesofthetable.com/2012/03/03/always-go-home-with-the-lady-who-brought-you-to-the-dance/
======
coffeemug
I used to think negotiations were simple - just come in with a reasonable,
middle of the way set of terms, treat the counter-party as a reasonable,
benevolent entity, and everything will work out all right. I quickly
discovered that while there are _some_ people who work this way, for the most
part if you adopt this approach people will eat you alive. You won't even know
what hit you.

I'd use the "reasonable terms" principle with friends I worked with for some
time, or with people who have an immensely strong reputation for being
reasonable (YC, etc.) But if you met someone two weeks ago, and they bring up
the concept of an emotional bond into what ought to be a commodity
transaction, alarms would go off in my head. (Note that it's easier to talk
about an emotional bond when you're on the better end of the deal).

Mark probably is one of the very few people who work in a reasonable manner,
but unfortunately for every person who works this way there are dozens of
impostors who'll pretend they're reasonable and then eat you alive the moment
you let your guard down.

So my advice would be the opposite. Unless you've worked with the person for a
while, or have _really_ strong evidence that they put insanely strong ethics
before profits (and believe me, gut feeling is _not_ strong evidence), or
you've already indicated commitment, take the better deal.

~~~
cperciva
I don't know Mark Suster, and maybe I'm completely misreading this, but the
whole story seems rather self-serving to me. His "ethical dilemma" was whether
to agree to a deal changing in such a way that he would be paying 50% more...
and when he said that no, he wasn't going to pay 50% more, we're supposed to
accept this as a great triumph for ethics?

I'm a great believer in behaving ethically, but this is not the sort of
example I'd give.

~~~
msuster
Fair comment. I could see why it might come across that way.

The impression I meant to leave was that I risked losing out on the deal all
together because the CEO could have simply done the deal with the other
investor.

I would rather that have happened than to screw over the VC who convinced me
to look at the deal in the first place.

~~~
larrys
I agree with what you did and it's what I would have done no question. But I
have to say that loyalty and that type of behavior has definitely hurt me
business wise over the years.

I wonder how much of that is "doing the right thing" vs. protecting one's
reputation so you can continue to do deals. (And you clearly referred to
protecting reputation ..)

If you are just interested in "doing the right thing" then the issue of
protecting one's reputation wouldn't even come up in the discussion, right?
(And nothing wrong with sounding "pollyannish"?)

I wouldn't have done what your friend did at the dance. Not because I'd be
worried about reputation but because it would make me feel bad to do it. I
wouldn't want it to happen to me (empathy). I can tell you have empathy just
by the way you wrote the post. I'm wondering if you feel a need to cloak it in
"reputation" and are you sure that's as big a motive as you make it out to be?
As if it won't be manly or something.

~~~
nhangen
I suppose it depends on what you value more - maxing your business potential
or maintaining your integrity.

------
pg
This account is vague about the most critical point: was there a handshake
deal? The phrase "the company agreed on a price" suggests there might have
been. But not necessarily; they might have been talking about what the price
would be if they did a deal.

If there was a handshake deal, the company should certainly have stuck with
the original VC. Not because of any complicated rules about who introed whom
to whom, but simply because you have to honor handshake deals.

If there was not a handshake deal, it's less clear. The company seems to have
been fairly eager to raise money. Which implies they'd have taken a
sufficiently good deal if one was offered. Which implies it had been in the
investors' power to get a handshake deal if they wanted one, and if they
didn't have one, they essentially blew it by negotiating too hard. If so then
I don't think the company would be obliged to stick with the original
investor. But I'm just speculating; it's impossible to say for sure without
knowing more.

~~~
wisty
No way. A VC will not honor a handshake deal. They probably won't renege
simply because they can get a better deal elsewhere (that's not how they
operate - if a deal is good they take it, as they have the luxury of being
able to participate in lots of deals), but if your market segment starts
looking less favorable then they'll probably dump you.

~~~
pg
They will honor a handshake deal with a company we fund.

~~~
staunch
The YC Mafia.

------
dmk23
The fact of the matter we are all professionals and everyone's job is to
protect their interests.

The CEO's job is to get the best deal for existing shareholders and optimize
the growth. The investor's job is to buy in at the lowest price / strictest
terms they can get away with. When a better deal comes along for the company
and the investors cannot match it they start coming up with all sorts of phony
excuses to buy in at the original lowball offer. If you feel strongly enough
about the company don't be a cheapo and match the new offer. If "it does not
fit the structure of your fund" then move on to the next deal.

Jeff Bezos walked away on the offer by Olympic Venture Partners (OVP) when
Kleiner jumped in and outbid them big. I heard this in a talk by OVP partner
who complained that John Doerr could make what he believed to be an
"outrageous" offer because the fund already had Netscape IPO exit and could
take much greater risk. Guess what, Jeff Bezos did the right thing for himself
and his existing investors and employees.

VCs walk away on term sheets all the time and typical deal structures favor
them anyways. The deal is done when the legal papers are signed and the check
clears. Nobody should act as though they are entitled to anything, whether
they are VCs or CEOs.

------
Drbble
To be clear, this article isn't telling CEOs not to negotiate or seek
competitive deals. It is about not backstabbing business partners.

~~~
msuster
Thank you. I wish more people saw it that way. I always believe in negotiating
/ seeking competitive deals. But once you agree a deal with people you honor
it.

~~~
edanm
How would you react in this situation:

1\. You negotiate and have a handshake deal with a company for a round of
funding.

2\. The company gets an offer for a higher valuation from someone who wants in
on the round.

3\. The CEO asks you whether to take them or not, but basically leaves it up
to you?

In other words, assuming the CEO didn't "backstab" you but rather sought your
advice, would you be upset that he's even considering a different deal? Would
you tell him he should take it, assuming the deal is still worthwhile for you?
How would you react?

~~~
msuster
that is EXACTLY what happened in the situation I described. We hadn't yet
signed the term sheet. So I told the CEO that I would understand if he went
with the other firm. But that I personally couldn't be involved with the deal
for reasons I described. Until a CEO has signed the term sheet (or gives you
an email saying they will) I assume they are still negotiating with others.

~~~
edanm
I'm mostly interested in whether you would hold it against the CEO for asking
your opinion on the matter. It sounds like you might be implying that the CEO
shouldn't even be considering the decision, whereas I would assume a CEO
working with you would want to feel like he can be open with you about his/her
dilemmas.

Of course I might be really misreading here.

------
MBlume
This sounds way too much to me like a VC trying to teach startup founders a
brand of ethics that mostly benefits VCs.

~~~
msuster
Nope. I was an entrepreneur for 10 years first. I always employed this
mentality. Reputation matters.

~~~
gregpilling
I have been self employed for 22 years. I have always worked this way, and it
has always paid far more in benefits than I ever could expect. People will
talk about the type of business person you are and the word always gets
around. It is amazing how fast and far your reputation can spread (for better
or worse).

------
Harkins
Business negotiations (in which VCs benefit from founders not shopping around,
negotiating for better deals, or building interest) are not at all comparable
to a social situation involving actual humans. The goal is to get readers
thinking morally instead of in the cold business terms that the VC is.

~~~
yason
This applies to a business negotiation. Not a series of them and much less to
a career made out of busines negotiations. Business is life as usual:
sometimes you must decline of something but generally you have to play the
bigger game where it matters how you treat other people, even at the expense
of optimal business or a short-term gain.

I would say that playing these social games IS what constitutes business and
while it's important to bond to allow for future business sometimes, actually,
the right thing is rather to not to play along if your gut says no, even if it
was good for business.

------
newman314
Remember that VCs are motivated by returning a big return to their LPs first.

It's nice to say that they'll stick with you but that could change in an
instant. Plenty of stories out there where people have gotten screwed over by
unscrupulous VCs.

PS. obviously, there are exceptions to the norm but I'm a big believer in
understanding people's primary motivations.

~~~
msuster
I definitely have never argued that all VCs are good or even that good VCs
always act appropriately. That's for sure.

I think the key is knowing the parties with whom you're dealing and knowing
their past behavior. I advocate reference checking portfolio companies that
failed: see [http://www.bothsidesofthetable.com/2010/02/08/how-do-you-
ref...](http://www.bothsidesofthetable.com/2010/02/08/how-do-you-reference-
check-a-vc/)

~~~
jpdoctor
> _and knowing their [VCs'] past behavior_

So given the complicated web of legal documents from the exits of folks that
have been screwed over, how would you find the worst cases?

------
billforsternz
I thought the catchphrase was "Dance with the lady who brought you to the
dance". I guess that's quaint and old fashioned nowaways, so it's been updated
to don't "hook-up" (a euphemism for something more intimate) with someone
else!

~~~
Drbble
Yeah, it is "dance with one that brought you" (or "what brung ya", or
similar).

------
mathattack
Very valid points. People will forgive all kinds of mistakes and failures -
except for ethical ones. There are always reasons to take the short cut in
prisonner's dilemma but work and life is a repeated game where trustworthiness
pays.

In the first example (staying loyal to a lower valuation) financial incentives
are on the aide of ethics. The later example (tossing out a signed term sheet
to get a better investor) is where it's a real test. It's not an ethics
decision until there is downside.

------
staunch
IIRC Zuckerberg reneged/begged his way out of a deal in similar circumstances.
The Washington Post had a deal to invest and then Accel came in with a huge
valuation -- which Zuck took.

------
proofpeer_com
This is an experienced VC writing total bullshit. He should know better. In
love and war, everything is fair.

~~~
jerf
In the phrase "all's fair in love and war", love and war aren't (or at least
_shouldn't_ ) be meant metaphorically. This isn't war and it sure isn't love.
(Which also isn't referring to the full set of the million things "love" can
mean but specifically to romance.)

~~~
Drbble
Not really.

[http://idioms.thefreedictionary.com/_/dict.aspx?word=Alls+fa...](http://idioms.thefreedictionary.com/_/dict.aspx?word=Alls+fair+in+love+and+war)

The point is, though, it is an excuse, not an ethical argument.

------
Ryan_Shmotkin
"Ethics if for those who can afford it" - And obviously a VC can (having
someone bring good dealflow is worth more than one deal).

Sounds like the poor CEO got 'guilt'ed into taking a worse deal.

------
davyjones
What about ethical behaviour of the new VC in the last case? It's like the old
VC did due diligence and the new VC "used" all that work without a shred of
decency.

~~~
Drbble
Almost as those their was "social proof" or "a validated market".

NDA or no way.

------
gringomorcego
Truthfully, I fucking hate this sort of shit. VC's and entrepreneurs are at
opposite sides of the table. You can pretend it's a friendship, but it's not.
Now, I don't extend this to angels. They are making a personal investment, or
at least that's how I perceive it.

VC's represent a corporation with a corporate interest. I do not extend ethics
to corporate entities. I will feel bad if something bad happens to a person,
but not to a corporation. I will never allow myself pretend that corporations
deserve anything close to a personal bond. And fucking shame on you for trying
to make people think of that.

You are business partners. At the end of the day, it is money. You want to put
a guilt trip on me? GTFO.

------
illumen
Always sell your house to the first bidder.

Always accuse the seller of having bad ethics, and turn it into a moral
dilemma for them so you can take advantage.

Always threaten their reputation.

Always avoid using sexist analogies.

