
The Pros and Cons of Taking Investment from Corporate VCs - joeyespo
https://medium.com/startups-and-investment/the-pros-and-cons-of-taking-investment-from-corporate-vcs-b8164023a938#.8zjc0f609
======
kabdib
"Fun" is being a relatively new hire at a startup and, about two months into
realizing that the little place is a dysfunctional train-wreck whose core
technology is little more than some crappy UI wrapped around an even crappier
XML processor (which the company didn't even write!), being called into the
offices of a couple of the corporate VCs and being grilled on how things
"actually were".

So I told 'em: Disfunctional this, hollow shell of technology that,
engineering practices that involved trading floppy disks of source code and
doing builds by hand.

I think they knew. There was little shock. Memo: If you're a hardware company
with little experience in software, don't invest in software you know nothing
about.

I don't know why the funding wasn't yanked. Perhaps it's because it was 1999,
the start-up was buzzword compliant, and although there were ominous creaking
sounds, the first bubble hadn't popped.

------
hkmurakami
Solid post. Echoes many of the things I've been told by very seasoned lawyers
in the field.

Tag along clauses for corporate investors are advisable to prevent them from
blocking acquisitions etc.

~~~
rahimnathwani
"Tag along clauses ... to prevent them from blocking acquisitions ..."

I think you mean 'drag-along' rather than 'tag-along'.

Tag-along clauses give minority shareholders the right (but not the
obligation) to join a deal negotiated by majority shareholders. Their
intention is to prevent minority shareholders from being screwed.

Drag-along clauses give majority shareholders the right to force minority
shareholders to participate in a deal. Their intention is to prevent minority
shareholders from blocking a deal.

In practice, many agreements include both tag-along and drag-along. The
parties assume that the majority shareholder does the deal on behalf of all
the others.

~~~
hkmurakami
Oh right, sorry I got the two mixed up and yes including both would be
prudent.

------
shin_lao
Some corporate VC are also very detached from the parent company and are
actually closer to "regular" VC than you might think.

