Dam Venture
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Dam Venture

All VCs Are Snakes (but Not All Snakes Are Venomous)

“THAT BELONGS IN A MUSEUM” — Indiana Jones (1993)

Picture this: you’re within two days of closing a deal, just waiting on final board approval for the closing documents. It’s been a messy process, a down round and a recap, but you think you’ve found alignment with the CVC (corporate venture capital firm) who is a prior investor. You even kicked out some new investors to make room for CVC to hit their ownership target. Then, the director of the board, and the very same CVC you kicked people out of the round to accommodate vetoes your closing docs and issues his own at higher valuation and now downside protections.

Might sound insane, but this is precisely what happened to us last week.

Dick move? 100%. Breach of a board member’s fiduciary responsibility? Honestly, probably. Complete waste of our time? No doubt. Am I still going to grab beers and hang out with my friends on that team next week? Absolutely.

See, this sort of thing happens every day in VC.

Every VC has an agenda, and every VC is working first and foremost for themselves and in pursuit of that agenda. You can’t blame them for pursuing that agenda, but for founders and VCs trying to collaborate, it’s important to find out early what that agenda is, and how that will dictate the VC’s actions.

This is the precise reason why it rarely makes sense for a founder to take a lead check from a CVC. Many of them have the potential to be venomous snakes; the corporate venture incentive structure is aligned only with the advancement of the business goals of the corporate, not making money. The corporate never wants the startup to be as big as they are, they only want to grow their own business as cheaply as possible. If you look at the case study of what happened with us last week, that’s precisely what happened. The corporate is blatantly trying to acquire the startup we were going to invest in (they’ll own ~40% after this round) and the reason they don’t need the standard downside protection provisions in the docs is that they are the downside protection. A small exit is probably precisely what they, and what many CVCs actually want.

It isn’t just a problem with corporate arms though. Many institutional VCs are venomous snakes too. But there’s a different line here. Some VCs will (without any regard for human life) oust CEOs, sneakily seize ownership, and run companies to the ground from the board level. And the worst part is that these are the venomous snakes that are hard to distinguish. They’ll look nice and present well right up until their true colors show. The classic difference between the coral snake and the king snake. These are the worst snakes of them all.

The rest of the VCs are what I like the call garter snakes. Sure, their main responsibility is to their LPs and generating financial returns. And yes, they’ll fight hard and even fight a little dirty to win a competitive deal. But on the whole their incentives are aligned with founders, and with generally making the world a better place through technology, because that’s how you make money. Doesn’t change that they’re snakes, but it does mean you don’t need to be as afraid of them.

Cheesy point of the day: my ideal snake ecosystem is one where all of VCs are garter snakes. It’s a little-known fact, but actually garter snakes prefer to live in groups. Many even have friends that they like to spend a bulk of their time with. We can do the same.

Yes, currently VC is a cutthroat industry, full of backstabbing, posturing, and lies. But although it’s true, to win in the industry you have to be aggressive and competitive, and for fight for what you want, you don’t have to do that by taking others down. Hopefully someday as an ecosystem we can realize and practice that.

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Andrew Chan

Andrew Chan

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Senior Associate at Builders VC (https://www.builders.vc/) obsessed with transforming pen and paper industries through advanced technology.