Yesterday’s post titled The Silliness Of Recapping Seed Rounds generated a robust discussion. It also inspired Joanne Wilson to write a post titled Recapping a round?? which is a description of a different situation and a different company, but generated a similar negative response from Joanne. In her case, the new investor insisted that the cap on the notes (for money that had already been spent) be raised so the seed investors would get less ownership than they’d signed up for, regardless of the investment the new investor is making.
I’ll just let Joanne, who works harder than almost anyone I know, and certainly adds more value to her angel investments than many VCs do, simply speak for herself.
“How do I feel about this? I am furious. I feel like I got hosed. I took a big risk by putting money in early on and now a VC with power behind them comes in and says here is the deal or we won’t let you in to our fold. What should have the investors done? Revolt? What is the point of that? Then we all lose. So I did what I believe in first and foremost and that is supporting the entrepreneur. The one caveat I made with the entrepreneur (which is purely blowing air) is that if this VC doesn’t secure a killer Series A for you then I will personally come out to SF and make this all public and have a showdown. If you are going to screw me and all the investors who came in around me then you better make it something we can all feel good about in the long run because right now I am just holding my nose.”
In my comment thread, and in Joanne’s, a number of folks asked us to call out the various players (especially the investors and the company) by name. I have no interest in doing that and I’ve said so. I’ve gotten a number of private emails asking me about the players. Same response – I’m not interested in calling people out by name.
Someone eventually asked me why and I thought it was worth a response.
I don’t write things like this blog to attack people. I don’t do it because I need to vent when I get upset. My motivation isn’t to create public fights. It’s also not to use this blog as a bully pulpit to negotiate, as someone suggested.
Instead, I do it for the same reason that Jason Mendelson and I wrote around 30 blog posts about the term sheet in 2004 and 2005 and then followed it up with our book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. We started writing stuff like this to demystify the process for entrepreneurs.
I think stories and examples are often the best way for people to learn things, including me. By writing down my thoughts about situations, I process them. I put them out there for anyone who wants to learn from them, explore them, or match them against their own experience. I try to do it in a way that contrasts all the rah rah bullshit that goes around with the resistance, hesitation, or inability for people to talk clearly and directly about the challenging stuff. And it’s especially pertinent as time passes, as things continuously change.
Not everything I write ends up being correct. I miss nuances. I don’t understand all the pieces. I learn by putting my thoughts out there and engaging with people in their reactions to what I write.
As a result, there are many cases like this where there is no value in naming names. The actual participants are just part of the story, but not the central theme. It’s my interpretation of what happened. Whomever else is involved with this situation (the investors and entrepreneurs) can decide whether it matters to them, or not, and act accordingly.
But I’m not a reporter. I’m just trying to teach. And learn. And observe. And hopefully help a few more entrepreneurs as they continue through an endlessly challenging, complex, and stressful journey.