Venture Hacks

In Understanding Why Your VC Is Acting Crazy, Bill Burnham, a former Partner at Mobius Venture Capital and Softbank Capital Partners, describes why investors don’t always do the right thing for your business:

“One thing that many entrepreneurs don’t fully appreciate is just how much the financial and organizational dynamics within a VC fund can affect how a VC behaves on their board. Over the years I have heard many stories from entrepreneurs expressing various degrees of frustration and mystification over a position taken by their VCs, usually with regards to an upcoming financing or an M&A transaction. For example, in some cases a VC that has been very supportive about patiently growing a business all of a sudden becomes obsessed with selling the company or in others a VC that has been aggressively pushing the company to grow quickly all of sudden becomes extremely cost focused and lobbies hard to cut the burn rate despite the fact that this will kill growth. After witnessing such abrupt changes in attitude and direction, many entrepreneurs are left scratching their heads wondering “What the hell is going on with my VC and why are they acting so crazy?”

“The answer to this question can often be found by simply getting a better understanding of the current financial and organizational dynamics within a VC’s fund, as these issues can have a profound impact on how a VC and/or their fund approaches a specific investment. With that in mind, here is some specific advice for entrepreneurs in terms of what questions they should be asking VCs and what information they should be monitoring.”

Your investors are your partners and they will help you build your business—to a point. Some of their interests may be deleterious to your business.

Frankly, some of your interests may be deleterious to the business. But I’ll give you the benefit of the doubt since you’re the guy who probably lived in your parent’s basement and ate rice cakes for 3 months to start the business. I assume you’re committed to the business—to a point.

Read the rest of Bill Burnham’s article.