Are VCs Shooting Themselves In The Foot?

from the learning-to-align-interests dept

We’ve written about this before, but here’s a good opinion piece from Bob Pavey of Morgenthaler Ventures, suggesting that venture capitalists are shooting themselves in the foot, by not working to align their interests with that of the entrepreneurs they fund. If both parties have the same incentive to succeed it makes for a much stronger relationship that is more likely to create a success. Instead, many VCs are trying to protect their own interests at the expense of the entrepreneurs. He brings up two issues in particular. The first is the expensing of stock options, which he feels VCs should resist – and he makes a very strong argument why expensing options does not make sense for startups. The second point is one that we’ve mentioned over and over and over again. It’s this fascination from VCs with insane liquidation preferences which practically guarantees that no one but the VCs themselves get any money from a company. Clearly that takes all the incentive away from the entrepreneurs and doesn’t do anyone any good.

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