Occasionally, I see VCs doing unethical and infuriating things. I have to call out those things when I see them, and my goal is to arm you (startups) with ways to combat these “VC asshat moves”.
Note: Not all VCs are Asshats, I’m not saying that. But I want to help you detect the few that are.
VC Asshat Move #1 is when a VC meetings with a startup that competes directly with another startup that they are planning to fund. In this asshat move, the VC reaches out (usually through an associate or principal) and says they heard about your awesome business. They’re interested in the space and wondering if you can come in for a meeting. You go in so the asshat (or possibly unwitting) associate can see if you’re a complete idiot or not. If not, you then meet with the actual asshat partner VC so they can assess you against the company they’re about to fund.
To you, the startup, this all feels as if they’re just interested in your obviously cool startup. They have brains. It feels good.
Then they say no. Then 30 days later, they fund a competitor. You may never suspect anything because after all, they were interested in the space. You’re bummed they picked them over you.
However, maybe it’s more devious than that. Maybe they already picked them, before they even met with you! They got you to come in and tell them all your secrets, and now they’re invested in the other company. It happens, I’ve seen it.
Many people will say “hey David, call out the VCs who do this.” I want to. Really, I do. But it’s not my place in the cases I’ve seen. Doing so will harm the startups who have already been wronged. So they have to do it, not me. If you had this happen to you, and it’s not sour grapes (we should all recognize that this happens too), then you should talk about it. But I can’t out specific VCs, because I want to help startups and not hurt them. So instead I’m talking about the issue generally because I believe it’s a problem.
Now back to why I’m writing this. I want you to be aware this happens, and I want to tell you how to stop it. First, ask the direct question in the first meeting “Are you talking with any of my competitors?” Most people have a hard time lying when asked a direct question. If they are already talking with your competitors, they’re likely to say yes. If they don’t then they’re very unethical and methodical in their ability to be asshats. If they say yes, ask directly “Are you close to investing in any of them?” and “Are we the leading candidate?” Watch for squirming and avoidance. If you see it, be really careful.
It goes without saying, but I’ll say it anyway. Always do your diligence on specific VCs that you’re dealing with (the partners, not the whole firm). Then ask the hard questions to be sure you’re on the same page. The VC, if they’re good, will respect you for asking and won’t view it as an accusation.