VCs Offer Harsher Funding Terms

from the well,-of-course dept

Not at all surprising (and we’ve mentioned similar things in previous articles), but venture capitalists are offering increasingly stricter terms on any new financing. These are generally in the areas of milestone financings (you can only get this much money if you do exactly what the VC tells you to do), liquidation preferences or automatic conversions (to try to guarantee that the VCs get back as much money as possible even if they did nothing to help you out), antidilution provisions (often to force out most of the “old money” in a startup so they have more control), and vesting rules (to make sure founders don’t bail out too soon – or if they do bail out, that they lose a lot of their stake in the company). The article includes some amusing quotes from both sides about why they’re doing what they’re doing. The VCs try to spin it to say that these are simply smart business moves – while the entrepreneurs, of course, think the VCs are getting greedy. I was recently talking with a VC who basically (privately) agreed with the entrepreneurs. He said, more or less, that VCs today only know how to screw the entrepreneur – and there are very very few who are actually interested in building sustainable businesses. The incentives to build a sustainable business just aren’t there.

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