On this special segment of The Full Ratchet, the following Investors are featured:
- David Cohen of Techstars
- Jacob Effron of Redpoint
- Ethan Austin of Outside VC
We discuss major conflicts that guests have faced and how they resolved them.
The host of The Full Ratchet is Nick Moran of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
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Transcribed with AI:
0:18
Welcome back to TFR on today’s special segment, we discuss major conflicts that guests have faced and how they resolve them. Here’s a special segment called high stakes conflicts.
0:35
On today’s special segment, we have David Cohen of TechStars, without revealing specifics, talk about one of the highest stakes conflicts you’ve faced as a VC, why the issue occurred and how it was
0:45
resolved. Conflicts,
0:49
those never happen in this industry.
0:52
I mean, yeah, that’s, I guess one comes to mind, where we had a company. You know, look, the SUV crisis was a big one. I’m not, you know, people heard that story, so I’m not going to go there. I’ll tell you a more unique one, you know, but, but, yeah, that SUV thing was, like, all of our money, all of our company’s money, right? Like, is that a conflict or just something that happens to you? I don’t know. But one that was more of a conflict. We had a pretty big company that was basically held hostage by an external group, hacking group, that got a hold of their domain and sort of, you know, wanted them to do certain things. And the situation that company was put in was basically a no win situation. And we’re talking about, you know, hundreds of millions of dollars of revenue company being held hostage and had its service taken down. You know, either do this right, or, you know, we’re going to continue to hold that hostage. And you know, it was like board meetings every, you know, four hours right for three or four days. And ultimately, the company got put in a situation where, you know, it had to make a choice, and neither choice was a good choice, right? You could easily say either of them was an unethical choice. But even in that situation, this company went back to its values and picked the choice that was most values aligned, and it all worked out. They got their domain back. They, you know, that hostage situation with their technology was released, but they had to do some stuff that they weren’t proud of in that moment, right? And sometimes that’s company building, right? You’re in these sort of impossible choices, and you just have to sort of do the best thing you can for your customers. And there’s not always one that feel great. So I know I’m not giving you super specifics, but you know, that’s like the literal gun to your head, right situation of your company being essentially taken over, where they want something. And maybe people would equate it today to, you know, what the government does, or, you know, tariffs, or something like that. But this was, this was a literal like, you know, we’re pulling the plug on you guys, unless you do these things we want.
3:09
Unreal. That’s crazy.
3:17
On today’s special segment, we have Jacob Efron of red point without revealing specifics. Talk about one of the highest stakes conflicts you’ve faced as a VC, why the issue occurred and how it was resolved. Yeah.
3:28
I mean, I think one interesting, you know, thing that we’ve been thinking about as a fund is, you know, AI is so different in so many ways. There’s all these large rounds early there’s, later stage companies that feel like venture deals, and I think the question has been, to what extent do we break our model, or like the way we do things, to adapt to this AI environment? And it’s a conversation we have all the time, and it’s one again that I think is constantly evolving as we see how things go in the ecosystem, and I think a lot of funds are trying to figure this out right now. Do we go earlier and take some more risk because of the uncertainty in the environment? Are some of these, you know, investments that are higher absolute valuations actually potentially good fits for us because they meet our return profile and look actually like deals that would, that would be a normal deal in our fund. You know, I think a lot of AI companies look different. And so it’s forced us to have this conversation around, you know, where do we adapt our model and where do we stay firm to like, Hey, this is, you know, this is what we do.
4:32
Have you noticed any fundamental changes to sourcing or the diligence process?
4:39
I think on the sourcing side, you know, it’s stuff’s happening earlier and earlier. So it’s just, I think, getting to amazing pools of talent, and it’s actually related to diligence too. I think one thing that is true of a lot of these AI companies early on is you can’t really use the expert networks to find people. Can diligence them. It’s really about having a strong personal network of folks that are deep in these spaces and can give you really good takes on, you know, the extent to which the technology really helps and is game changing, and the quality of a team. And so in many ways, I think it’s become more, you know, than it’s ever been about finding high pocket, you know, high quality pockets of talent, and really becoming close with those pockets of
5:30
talent. On today’s special segment, we have Ethan Austin of outside VC, without revealing specifics, talk about one of the high stakes conflicts you faced as a VC, why the issue occurred and how it
5:41
was resolved. Yeah, I mean, I’m not on boards. We’re investing really early stage, so we get to avoid some of that drama. But the thing that probably comes up the most at the stage I’m investing at is we see founder splits quite a bit, and they take every shape and every flavor and every form. And, you know, I don’t want to go into the specifics on all but, like, they’ve been handled different ways. And some of them have been, you know, you had two founders who who get it and they they figure it out amicably. And, you know, sometimes you just have share buybacks and and then other times you have people coming up with creative ideas for where founders have said, hey, if this works out for me, I’m going to give you upside from from my side of it, which seen before founders do like coming up with their own thing, and then, and then other times things went sour. Where you had founders who didn’t come from the startup world and sued for wrongful termination, and he saw founders kind of work through that, and, you know, reached arbitration, and I’ve seen founders repeatedly, not something I advise, actually advise against, but repeatedly take their own equity, put it into the company, or feel the need to re you know, to repay investors, which I don’t agree With. But I’ve seen founders do this multiple times, where they’ve said, hey, it’s going to come from my end, which, again, like I advise against, but, but founders have seen people get creative and do it that way. Interesting.
7:17
That will conclude this installment of investor stories. If you’re enjoying the program and would like to see it continue, take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today until next time over. Prepare, choose carefully and invest confidently. Thanks for joining me.
