Last Wednesday I had coffee with an old friend and former colleague. We haven’t worked together in a while and were reminiscing about the old days. I miss the old days when we used to be locked in battle together on the issues affecting our company. Seeing him again also reminded me of one of my first big lessons as a VC – knowing when giving in is more important than being right. So I Tweeted that the next morning:
“When the consequences of “being right” are not great enough sometimes graciousness & conceding is a better option”
Yes. Of course it’s a universal lesson and one that I’m doomed to learn over and over.
I wrote about it in this widely read post, “Be Gracious When it’s Time to Give In.”
But I started thinking more about the role of a VC and the founding team or CEO. There are simply times when you don’t agree. There are other times when your economic interests aren’t aligned. I think it’s healthy and ok to voice your opinion and stand up for what you believe. But there comes a time that even if you believe in your bones you’re right it is simply not worth enough economically speaking to fight.
I could give you a million little examples of where this comes up no matter whom you’re working with. Like inside bridge rounds where investors want to protect themselves from the company getting sold prior to the next financing and leaving the bridge funding without adequate returns. What should the right return be in this case? It’s not an easy question even thought there are industry standards.
What about when an acquisition takes place? The acquiring company wants 100% of the proceeds to go to founders whatever the cap table says because buyers care way more about incentivizing and locking in founders than they do about VC returns or legal provisions to protect VCs. Surely there is some amount of extra returns that will get set aside for founders – but what is right and what is fair? Every circumstance is different.
A founder wants his co-founder to leave and the stock agreement says you can take all of his unvested stock back and wants you as the VC to be the bad guy. Surely having some peace at the time of exit is better than fighting over relatively small amounts of stock. But it’s hard when these subjects are so emotional, involve money & prestige and have no clear black-and-white answers.
Anyway, chalk this up as one of those questions where there is no clear answer because each case is situational. But in the case of my good friend I remember the moment that I took the circumstances back to my partner Steven Dietz for advice on how to play it. He told me, “Of course you’re right on facts. 100%. But it’s not worth enough to fight over. You’ll end up pissing people off and it just won’t matter enough to our returns to be worth it. They are great entrepreneurs and let’s just make sure we work with them in the future.”
And then I preceded to do the opposite. And of course when push came to shove I did the right thing and caved. And I lost twice.
Of course I’m not suggesting that you give on every negotiation or never negotiate hard. Just understand when it’s worth it and when it’s not.
I was grateful to my friend that we could meet like old colleagues and just shoot the shit again. And grateful to have taken a moment to reflect on this lesson so I don’t repeat my mistake too often.
(Cross-posted @ Both Sides of the Table)