A partner in a top tier VC who funded our competitor is interested to invest on us and even gave us couple of good intro to potential customers. He claims they have separate funds in different locations, so it’s not a conflict. Should I trust him?

Maybe.

A few thoughts:

  • First, conflicts are somewhat fluid and even subjective and not AS big of a deal as some make it out to be. I know this is perhaps a different perspective from most, but are you really so sure you are competitive with another startup? Will you still be in 5 years? Will a start-up that doesn’t seem competitive today evolve into a competitor in the years to come? Who knows. Also, some folks are going to share your information no matter what, especially after a fundraising process.
  • Your information isn’t really so confidential, at least not most of it. Your revenue? I can guess. Your burn rate? I can back into it. Your problems? I can just go interview someone you fired. Especially these days where companies and people are more transparent than ever, a lot less is confidential than you think.
  • Different funds often are run partially seperately. If the VC says a fund in a different geography is run very differently and there is a wall between the funds, that may only be 80% true, but maybe it’s good enough. Especially if you want / need the money.

This is not to say there are no issues. I invested in a very successful SaaS startup where there quickly became a large conflict, and the VC had to pick one or the other. They ceased doing pro-rata rights, getting detailed board packs, etc. in the one they didn’t “pick”. And the picking had to do with a senior partner vs. junior partner dynamic.

So be wary of conflicts, but don’t assume a VC that says she can invest … cannot. She probably can.

And which conflicts aren’t great, at the end of the day, if you only have 1 good investment offer, and the VC partner says it isn’t a conflict for her … I’d take that 1 good offer.

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Published on May 30, 2018

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