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The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to part

The VC controls (and always controlled) the outcome for your company. I can't say I understand his behavior - blocking an acquisition but also refusing to participate in a future round makes both liquidity and fundraising impossible. Perhaps he plans to drive the company to the brink and then do a down round. The only leverage you have over him is the damage his behavior, if public, could do to his reputation - since VCs live and die by their dealflow. If the deal was still on the table, I would've politely discussed his future exposure - 'if this behavior keeps up and the deal doesn't happen, you are not going to look good in the post-mortem I'll be posting to Hacker News'. Quality VCs know that their reputation depends on keeping entrepreneurs happy. Now that the deal's dead, you might as well leave - but you'd be doing a disservice to the rest of us to not reveal who this guy is. If you can't do it in public (perhaps you're worried about raising money again from someone else - which, sadly, is probably valid), at a minimum you should be describing the whole story over at The Funded.

jayzee 16y ago
Good analysis. I have to agree with Gyardley. If he will not acquiesce to a sale and does not want to participate in future rounds then most likely he wants to do a down round. That seems to be the only option that explains his behavior unless I am missing something. So what are the chances that you can line up another buyer? Even at a valuation less than before would be worth considering because it looks like he is out screw you over. You might at least get something out of it even if it was not what you imagined. If you line this offer up you and the team can give the investor an ultimatum. I think that sometimes directly calling out people's bad behavior can help. If you can't line up an offer and then working out the math it might be best to quit. Also I might recommend 'Getting to Yes' as a great book for negotiating. Might be too late this time, but there is always a next time!
phlux 16y ago
Exactly, The only leverage this guy has left is to reveal the antics of the VC in public, and potentially leave the company. At this point, I would anonymously blog about the entire situation regarding the VC's behavior while never revealing your own name nor the name of the company - only the name of the VC. Sure, the internet will find out the company name in due coarse, but you will have several days or so of the VCs behavior out there all on its own for the rest of the community to evaluate.
- davidu 16y ago
  There is a lot more leverage here than that.
  - phlux 16y ago
    I am sure you're right... I don't have a good enough perspective to give much more of an opinion than I did though :)
mikeryan 16y ago
I generally agree but both VCs and entrepreneur's rely on reputation. I'm not sure a public airing of grievances will do the OP much good. The threat of doing so is really the only thing that would have any benefit, perhaps encouraging the VC to move faster with future deals, actually posting may damage the OP's standing with potential VCs in the future. There is likely another side to this story and I lean towards keeping dirty laundry private.
- dctoedt 16y ago
  1. Agreed on their likely being another side of the story; that seems to be the case more often than not. 2. Outing the VC could provoke him to retaliate by filing a lawsuit for defamation, and/or for tortious interference with prospective economic advantage. The OP doesn't need that kind of grief right now. 3. It might be worth spending a few bucks to talk to a savvy business litigator -- this sort of thing comes up fairly often in closely-held corporations. Maybe Grellas will put in an appearance on this thread?
  - vessenes 16y ago
    Speaking of 2) Tortious interference claims can go both ways, but I agree that it's not what a startup CEO needs.
davidu 16y ago
Strong disagree. Outing the VC won't help and the OP has much more leverage than that as I commented elsewhere in the thread.
throwaway5317 16y ago
Thank you for the analysis, I appreciate the clarity with which you describe his confusing behavior. It might be that he has such plans. As for taking the conflict public, I don't have it in me. It is not something that aligns with my world view because I know that I too can be wrong sometimes and not see the whole story. I prefer that people know they can trust me rather than applying that kind of leverage.
- keeptrying 16y ago
  Its surprisingly hard to effect revenge even when its right in front of you and easy to reach.
- dschobel 16y ago
  Exactly, while it might help others to expose the VC, you would be putting your own reputation at risk. When seeking revenge, bring two shovels and all that.
A1kmm 16y ago
The down round theory doesn't really make sense. Let's say you own x% of a $y car, but you have the power to crash it and write it off (at which point it is worth $z for parts, z << y) with no consequences except the loss of value in your share. If you do it, after the crash, you can buy any percentage d% you don't already own in a down round (0 < d < 90), at the current price, $z/100%. Before the crash and down round, your interest is worth $(y * x/100). After the crash, your interest is worth $z * (x + d)/100%, but you have to pay an additional d%/100% * $z. Therefore, the crash and down round changes your wealth by $z * (x% + d%)/100% - $(y * x%/100%) - d%/100% * $z = $(z-y)*(x%/100%). Since z << y, and x > 0, the VC will always lose wealth by destroying value to force a down round. If they could get a z value higher than the true value, the situation might, change, but that would be difficult. What I think is actually happening here is the VC is playing what is called a game of chicken in game theory (http://en.wikipedia.org/wiki/Game_of_Chicken http://en.wikipedia.org/wiki/Game_of_Chicken) to try to get more than their rightful share of the deal. A game of chicken is where if one player gives up first, the player who gives up loses a small amount, and the other player gains a small amount. If neither player gives up, they both lose a large amount. The VC wants you to give them more, by forcing you to choose between doing what they want, or hurting both yourself and them by completely destroying value in the company. Strategically, you now need to either capitulate to what they want, convince them that you won't back down (if they are convinced you won't back down no matter what, it is in their interests to back down and let the next acquisition opportunity go ahead), or find a way to stop them blocking acquisition.
- jarin 16y ago
  The three options you suggested are pretty much the only three options available aside from quitting the company, aren't they?

jayzee 16y ago

Good analysis. I have to agree with Gyardley. If he will not acquiesce to a sale and does not want to participate in future rounds then most likely he wants to do a down round. That seems to be the only option that explains his behavior unless I am missing something. So what are the chances that you can line up another buyer? Even at a valuation less than before would be worth considering because it looks like he is out screw you over. You might at least get something out of it even if it was not what you imagined. If you line this offer up you and the team can give the investor an ultimatum. I think that sometimes directly calling out people's bad behavior can help. If you can't line up an offer and then working out the math it might be best to quit. Also I might recommend 'Getting to Yes' as a great book for negotiating. Might be too late this time, but there is always a next time!

phlux 16y ago

Exactly, The only leverage this guy has left is to reveal the antics of the VC in public, and potentially leave the company. At this point, I would anonymously blog about the entire situation regarding the VC's behavior while never revealing your own name nor the name of the company - only the name of the VC. Sure, the internet will find out the company name in due coarse, but you will have several days or so of the VCs behavior out there all on its own for the rest of the community to evaluate.

davidu 16y ago
There is a lot more leverage here than that.
- phlux 16y ago
  I am sure you're right... I don't have a good enough perspective to give much more of an opinion than I did though :)

mikeryan 16y ago

I generally agree but both VCs and entrepreneur's rely on reputation. I'm not sure a public airing of grievances will do the OP much good. The threat of doing so is really the only thing that would have any benefit, perhaps encouraging the VC to move faster with future deals, actually posting may damage the OP's standing with potential VCs in the future. There is likely another side to this story and I lean towards keeping dirty laundry private.

dctoedt 16y ago
1. Agreed on their likely being another side of the story; that seems to be the case more often than not. 2. Outing the VC could provoke him to retaliate by filing a lawsuit for defamation, and/or for tortious interference with prospective economic advantage. The OP doesn't need that kind of grief right now. 3. It might be worth spending a few bucks to talk to a savvy business litigator -- this sort of thing comes up fairly often in closely-held corporations. Maybe Grellas will put in an appearance on this thread?
- vessenes 16y ago
  Speaking of 2) Tortious interference claims can go both ways, but I agree that it's not what a startup CEO needs.

davidu 16y ago

Strong disagree. Outing the VC won't help and the OP has much more leverage than that as I commented elsewhere in the thread.

throwaway5317 16y ago

Thank you for the analysis, I appreciate the clarity with which you describe his confusing behavior. It might be that he has such plans. As for taking the conflict public, I don't have it in me. It is not something that aligns with my world view because I know that I too can be wrong sometimes and not see the whole story. I prefer that people know they can trust me rather than applying that kind of leverage.

keeptrying 16y ago
Its surprisingly hard to effect revenge even when its right in front of you and easy to reach.
dschobel 16y ago
Exactly, while it might help others to expose the VC, you would be putting your own reputation at risk. When seeking revenge, bring two shovels and all that.

A1kmm 16y ago

The down round theory doesn't really make sense. Let's say you own x% of a $y car, but you have the power to crash it and write it off (at which point it is worth $z for parts, z << y) with no consequences except the loss of value in your share. If you do it, after the crash, you can buy any percentage d% you don't already own in a down round (0 < d < 90), at the current price, $z/100%. Before the crash and down round, your interest is worth $(y * x/100). After the crash, your interest is worth $z * (x + d)/100%, but you have to pay an additional d%/100% * $z. Therefore, the crash and down round changes your wealth by $z * (x% + d%)/100% - $(y * x%/100%) - d%/100% * $z = $(z-y)*(x%/100%). Since z << y, and x > 0, the VC will always lose wealth by destroying value to force a down round. If they could get a z value higher than the true value, the situation might, change, but that would be difficult. What I think is actually happening here is the VC is playing what is called a game of chicken in game theory (http://en.wikipedia.org/wiki/Game_of_Chicken http://en.wikipedia.org/wiki/Game_of_Chicken) to try to get more than their rightful share of the deal. A game of chicken is where if one player gives up first, the player who gives up loses a small amount, and the other player gains a small amount. If neither player gives up, they both lose a large amount. The VC wants you to give them more, by forcing you to choose between doing what they want, or hurting both yourself and them by completely destroying value in the company. Strategically, you now need to either capitulate to what they want, convince them that you won't back down (if they are convinced you won't back down no matter what, it is in their interests to back down and let the next acquisition opportunity go ahead), or find a way to stop them blocking acquisition.

jarin 16y ago
The three options you suggested are pretty much the only three options available aside from quitting the company, aren't they?