On this special segment of The Full Ratchet, the following Investors are featured:
- Seth Levine of Foundry
- Eric Byunn of Centana Growth
- David Ulevitch of Andreessen Horowitz
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 Seth Levine of Foundry Group. Seth, 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.
0:48
Yeah, so I will talk about it, about an idea more generally, which is it is not uncommon for investors, either amongst themselves or between investors and the company management founders to have misalignment around sort of when and how to sell, right? You get an offer, investors want to keep going. Management’s like, actually, this feels like a pretty good outcome. And I think that happens all the time, right? And I think that and oftentimes, by the way, investors disagree amongst themselves, either because one investor got in at a different basis, and, you know, they’re expecting a bigger outcome, or could be as simple as someone’s fundraising, and they really want that dpi, right? And, and the way that I always try to deal with that is to be, like, upfront and honest about it, right? Like, let’s not, let’s at least acknowledge what our biases are, and what our thinking specifically, what’s behind our thinking, rather than because I had some some experiences when I was sort of early in my career, where it’s like, so clear that people were arguing for something for a very specific reason, but they just like, would not admit, hey, I’m fundraising right now. I’d actually kind of like to get some DPI right, because you can solve for some of these problems if you if you know what the problem is, right? Like, okay, well, you be so maybe you need something out. Or maybe the CEO’s like, look, I believe in the company, but I’ve got my kids are 12 and 13. Like, I like the idea of, you know, taking some money out, right? Okay, well, let’s maybe we can solve for that rather than sell the whole company, if we think there’s still this upside. So I would give that as sort of a very common example. I think it happens all the time. And, you know, I feel like I’m known for my bluntness and across a lot of different sort of aspects of my work and but I think this is an example of where, where that often comes out is like, Okay, well, let’s talk about like, why is it that you want to sell for two, $50 million when we all just talked a month ago about how we thought there was this, you know, massive opportunity here, and we’re going to get it. Let’s So, let’s, like, talk about that. Or I love calling other investors out, because they’re, you know, I guess maybe not used to it. But like, what’s going on with you guys right now? That’s making you say that you know you either do or don’t believe in this.
3:01
On today’s special segment we have Eric bun of Santana growth, Eric, can you talk about one of the highest stakes conflicts you faced as a VC? You know why the issue occurred and how, how it was resolved easily?
3:15
The one that feels the highest stakes that that we’ve seen repeatedly is just when, when and a little bit how, but mostly when to exit a company. You can have a lot of different perspectives on that. I’ve seen management on both sides of that question, both in terms of, hey, I want to go for it for longer, or hey, we’ve achieved success. I’m ready to exit. I’ve seen funds and investors take different positions on that, often rooted in when and the terms on which they entered the investment. And I’ve, frankly, seen situations where, unfortunately, investors have behaved very unethically around that, and it’s led to a large degree of conflict. What is true is, because this is such a high stakes situation, there are some basic principles that I haven’t seen at the end of the day violated in terms of of how to get to a decision. Those two principles, I’d say two categories. One, in most cases, at the end of the day, it’s very hard to get to a any kind of good outcome without being in alignment with your your management team, so you can try to be persuasive, etc. You know, nine times out of 10 management team kind of wins that debate when that isn’t the point of the dispute. You know, we have all these nbca legal documents. Brenna, that outline a very clear kind of voting mechanism, and there are formal votes and that, that is how those things typically get resolved. What if you’re
5:12
in a situation where you get an offer from, like a secondary from, like a new round investor that wants to, you know, take you out at some multiple is there like a crib sheet? Are there some principles that you kind of think about when you have an opportunity to take an exit but you don’t have to? Yeah.
5:35
So first of all, we’ve we’ve never done that. We when the founder of the management team has been opposed. So first, first principle is, you know, we, we, we’ve won some of the founder friendly awards. You know, it’s important to us that, just philosophically, that, you know, we entered our investment with the management team and the founder and the stakeholders, and if they are against it, then, then, then we’ve never done it. But then the second is, you know, if it really, if they’re supportive, then honestly, it really is a portfolio management decision around, you know, at the end of the day, venture capital, growth equity, private equity, we are investors. We are fiduciaries for the the various nonprofits and educational institutions and pensions and all those things whose money we invest. And so we have fiduciary duty to them, like every similar financial fiduciary, to think about it from their perspective and decide kind of what, what makes sense. Awesome.
6:59
On today’s special segment we have David ulovich, GP, of Andreessen Horowitz, American dynamism. David, without revealing specifics, talk about one of the highest stakes conflicts you faced as a VC, why the issue occurred and how it was resolved.
7:13
I found out recently that another venture firm that we do a lot of deals with and work with regularly had a huge beef with us and conflict that we didn’t know about. It’s like when your friend your friend hates you but doesn’t tell you that they hate you. And it came to a head in a deal where we were trying to invest in a company, and, you know, we really never want to put the founders in these positions of being between, you know, two other people that are fighting. But I didn’t even know there were, there was, there was beef. Found out there was beef. Thought it was very minor beef, and then it turned out that it was very, very major beef, I guess. And it ended up taking about two months and a lot of conversations, a lot of phone calls, where the phone calls originally started out with somebody screaming on one end and yelling all the way to, I think, getting to a much stronger and better place, and the grievances, I would say, largely boiled down to philosophical differences just about the way that we build and operate our firm. And it all got worked out. But I had a I didn’t know that this, this other firm, had had issues with us, and it took a lot of work, and I had to bring in a bunch of my partners to get involved in resolving it, and really lean on relationships that we’ve had for years, and just like, look like we can go to war, that’s one path, and really be at war, and eventually it’ll spill out publicly, or we can just say, hey, look like we just have different philosophies, but we can still work together when it comes to supporting entrepreneurs and building companies. We’re very much aligned, certainly the categories we invest in we’re very much aligned. So I think we could probably get past this. It’s certainly the benefit of our founders to get past this. And you know, when there’s great companies, we’re always going to want to be co investors. And I think everybody sort of recognized that was true, and now it’s all in the past, amazing, very stressful. I also thought I was creating drama for my partners, which, you know, you never want to be the squeaky wheel on a firm creating drama for your partners, I bet.
9:03
I mean, so often, 90% of the time, we’re talking about optimistic things on the show and all these great companies. But the reality is, on a week to week basis, each week, there is a different, very difficult challenge that needs to be solved. And it, it’s kind of the underbelly of the business, but it’s, you know, it’s part of doing this, and it sucks, but it must be done.
9:25
I mean, the other thing is, on the LP side, with American dynamism, we certainly invest in defense companies, many of whom have an offensive capability, and it’s not really an issue anymore, but early on, we would just get lots of emails and questions from LPs, many of which I thought were just like, ridiculous questions that weren’t based in I mean, the hypothetical questions I would get were crazy. That’s all, thankfully in the past, but we did spend a lot of time, I think, educating our LP base as to why this was exciting and important, and we thought we’d have a great financial return. You.
10:01
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.
