VCs Giving Up On Onerous Terms

from the it's-about-time dept

Over the past couple of years we’ve posted any number of articles about venture capitalists forcing the most ridiculous terms on companies they fund. However, now there’s some evidence that the VCs are realizing these deals don’t help anyone. They tend to piss off the management of the company, which doesn’t make for the nicest working relationship. Also (and probably more importantly) they incent the companies in bad ways. Things like multiple liquidation preferences (where the VCs are guaranteed to get many times their investment before anyone gets anything in event of a sale) incent the companies to do whatever they can not to sell the company – which often is not the best strategy. The VCs clearly over reacted when they suddenly realized that making 30% or higher returns actually took some work. Now, however, maybe everyone’s starting to come to their senses and venture capital can work the way it’s supposed to again.

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