Bevans Branham from Palm Springs California:
This blog post is a response to a recent article that I read in the New York Times that asks
the question, “Do your board members represent your interests?” You can view the
article in it’s entirety here. The article explores some speciﬁcs regarding how a new
company or a startup gets investors (especially venture capitalists) and at times the
members of your board might want to push a direction that might not end up being
optimal for the company.
Why Not Just Take the Money?
Given you have board members who are venture capitalists, they have invested a lot of
money into you and your company. Hence, when you are looking to raise more money,
perhaps through another round, the VCs are often likely to push for another equity round
and, in doing so, hype returns in the immediate. However, it can be preferable for the
company as a whole to place this next round as debt, not diluting their own ownership
position yet further.
In the article they used a term for this which I found particularly provocative and quite
telling, “the venture capital treadmill”.
The best way to avoid the VC treadmill is to make sure from the start that those who
invest in your company initially have shared interests, investment horizons and
objectives. Initial investors who have only short term proﬁts as a goal might be better left
uninvolved. Though tempting, and possibly helpful initially, in the long term you might
well end up being forced (since board members are obviously allowed to vote on
important matters) to take another VC round to the detriment of your ownership position
and the company you founded.
Do you have any experience with this situation that you’d like to share? Please leave a
comment below and let me know, be good to hear other’s perspectives and experience
and share it with the start-up, entrepreneurial and associated venture capital community.
As Yoda said, “There is no try . . . just do”. It’s true!