Badly behaved VC - series 2
I am attempting to keep track of bad behaviour by venture capitalists as and when my work day causes me to be exposed to such an instance. Today was one. Pre and Post option pool scams. Yes - i am now convinced that they are not sophisticated negotiating postures, they are scams. They are scams because they create a shift in control from the entrepreneur to the investor, through employment agreement rights, firing for cause, and so on. The age-old - 'we need a seasoned executive to take this to the next level' is often times a lie. It should read 'we will dump you the entrepreneur and replace you with 'friendly to us MBA XYZ', your options that have not vested will be given to him / her, and we the investors won't get diluted' - Eureka. Term sheet particulars such as this need to be exposed, so that abstract permutations that an entrepreneur can't possibly see in these clauses are explained in the real light under which they are created. the 'we are the entrepreneurs VC' mantra should be the first red flag. If a VC has more fear than greed built in to his / her assesment of an investment, buy debt. Dont try and build a company.