

Getting a Divorce from a VC - hga
http://justanentrepreneur.com/?p=32

======
grellas
_We kept a majority of shares_

The battle of the wills described in this piece could only have been possible
because the founders retained their majority control and even then it was
obviously painful as could be dealing with the types of bullying investors
described. Had it not been for this, the founders would have been crushed.

~~~
hga
And the company would have died. The VCs needed a short term 10X or better
return on their money due to the fund ending and were willing to bet
everything for a chance to get it since " _shares in an illiquid company are
useless to the VC_ ". Profitable enough to return 2X the VCs' money and
growing at "double digit rates", just not enough.

The 5 to 10 year lifetime of current VC funds coupled with the slow (at best)
economy and the much greater difficultly in cashing out post the doc.com crash
suggests that taking VC money today is particularly risky and taking it near
the end of the fund's life far worse.

~~~
_delirium
Is the fund-lifecycle position of a potential VC something founders usually
know about and take into account in funding rounds? I don't think I've ever
seen it discussed in the checklists of what to watch out for when taking VC
funding.

~~~
staunch
VCs will tell you how much they've invested and where they are in their fund.
They also often have more than one fund going at a time.

------
Construct
"The big company execs don’t realize nothing happens at a small company unless
you personally take initiative. Nothing comes to you by itself."

This part hits very close to home. Every single one of the executive, sales,
or biz-dev people our VCs pushed on fell into this trap. Without fail, they
would dig into their network until reaching an impressive contact, put
together a powerpoint proposal with shockingly good projections, and then
expect someone else to make it all happen. However, in every case they were
ousted by the board and the VC firm after 1 year of not producing results.

~~~
tailrecursion
When you say "they would dig into their network" do you mean that first, the
VCs recommend that you hire the executive, and then the executive hires his
impressive contact -- the one who is supposed to make magic?

What do you suppose is going on here? Is the executive just trying to build
his empire from the start? Or, are these executives circulating around in a
system of favors, going from failure to failure? Do you think it's naivete,
stupidity, or cynicism on the part of VCs to hire these guys?

------
hko
Can anyone figure out who the VC was? Would be interesting to know.

~~~
staunch
Yeah. This is the kind of behavior they're not supposed to be able to pull
because the business is reputation based. But that only works if people name
names.

------
rubyrescue
Reads like the Hacker equivalent of a Harquelin Romance novel... by the end
you want his VCs' heads put on stakes :)

~~~
patio11
If it had been a Harlequin romance novel, the vaguely abusive but mostly
misunderstood VC would probably have gotten the founder, after several
speeches about how she was not to be tamed.

My not-so-secret shame is that I have a Kindle full of urban fantasy, which is
essentially isomorphic to romance, except the bodices get ripped with
retractable claws. Oh, and the lover is her sire, so he has a excuse for being
abusive and controlling when he isn't being a suave sex machine. By the way,
she didn't consent to being turned but kind of enjoyed it anyhow. Both parts
of that are major plot points, frequently returned to.

The worst part of it is I just can't stop reading them. _sigh_

~~~
YuriNiyazov
Sounds fascinating. Some recommendations? (not kidding)

~~~
patio11
Typically they're marketed under an identifiable naming scheme and the
heroine's name. I'm going to give you titles from the first in the series, you
can search on Amazon to find the rest.

Let's see: Dead Witch Watching (my first urban fantasy series and a decent one
to get started on if you're new to the genre). Succubus Blues (an... amusing
choice in a protagonist). Trick of the Light. Nice Girls Don't Have Fangs ("He
vamped me against my will, comedy edition"). Some Girls Bite ("He vamped me
against my will, drama edition" -- probably the quickest teach-you-the-tropes
book on this list).

------
leftnode
Ugh, this just reinforces the idea I would never want to take venture capital.
To me, being an entrepreneur means you only answer two yourself, your
employees, and your customers. Having to answer to a board sounds like the
most miserable thing ever. To spend your life building a company, putting your
blood, sweat, and tears into your business only to be fired by a board that
dislikes you would be devastating to me.

It really makes me respect purely bootstrapped companies a lot. (I know, I
know, we wouldn't have a lot of huge companies that we depend on daily without
venture capital).

------
jboydyhacker
Getting a VC investment is just like a marriage except for the things being
equal part. Typically all the power comes with those preferred shares and the
only real way to "get a divorce" is to buy them off just like the founder did.

There really are only 3 true options if you need to raise large amounts of
institutional capital. 1) Stage a round with so many VCs that if you get one
or more bad ones, they get shouted down by the other ones 2) Just take
investments from people you know for certain are great (hard to do unless
you've taken money from them before 3) Only take a very small amount so you
don't actually give up control. That's harder to do since most vc's won't do
the deal otherwise.

~~~
hga
Hmmm, yeah ... it's possible that these VCs only accepted a non-control
position because they were desperate due to their fund closing fairly soon
(let's assume within 2-3 or so years) and needing another chance at a big hit.

------
mkramlich
The general lesson I've gotten from most stories related to VC is to not
involve VC if I can help it. It's the safer, simpler course. And also,
ideally, never take on investors of any kind. Again, as long as there is no
real pressing need. Instead, start tiny, grow organically. Maybe take on a co-
founder, give them equity, if they have the right talent and the fit is good,
and you want to conserve cash to help stave off needing investment, etc.

Also, don't take on employees unless it's necessary to turn it into a (more)
passive income stream. Speaking ideally again.

~~~
hga
Yeah, but the problem with the above is that it necessarily limits the scope
of your venture. E.g. you're very unlikely to do anything related to hardware
with such constraints (I keep wondering where the next "wow" hardware
development akin to the FPGA is going to come from in the current post-dot.com
crash funding ecosystem).

I suspect there's a continuum from keeping the most control to having the
greatest chance of "changing the world".

------
hga
Prompted by/in the blog comments to
<http://news.ycombinator.com/item?id=1423669>

~~~
moolave
Yes, Fred Wilson's recent blog, and commentary contributors, have a lot of
valuable input on this.

------
mootothemax
_(he has eleven attorney’s in his practice at a major firm)_

 _we had watched three company’s raise more than $10M each in our space_

I am genuinely sorry for it, and part of me feels elitist for insisting on it,
but I will always [EDIT]be[/EDIT] wary of anyone who doesn't know their
apostrophes.

~~~
gruseom
_I will always wary_

Muphry's Law, a truly remarkable thing!
<http://en.wikipedia.org/wiki/Muphrys_law>

~~~
mootothemax
I love being the proof ;-D

My only gripe is that I'm looking forward to the day I can do the same in
Polish... and make it look like an accident ;)

------
gscott
A guide on how to get rid of your vc when they start becoming problematic
would be good. I suppose another way out would be to find someone capable of
sustaining a longer view (for the companies that avc would call 'Zombies'...
zombies being profitable but not earth shattering.)

