Beta: Why We Don’t Invest In Competitive Businesses
Daryn
· 2 years ago
Competing companies are often taking different approaches to filling the same need. If you believe that the need has to be filled, and that one of two competitors is going to be the one to do it, why not hedge your bet?
This is strictly money-speaking though. I understand the complexities and conflicts of actually managing the relationships, and I could make some really bad analogy to an open marriage I'm sure, but I won't!
Steve
· 2 years ago
Fred, as an entreprenuer, I agree with 1,000,000,000,000,000,000,000%
If nothing else, what VC can say with a straight face that there is no breach of fiduciary responsibility when one sits on the Board of a company while also having insider info on a competitor and not continuously cross-disclosing any/all such competitive info (a requirement that would make it impossible to invest in competitors -- that is, if one is honest)?
Also, hell, last time I looked, as a founder or exec or CEO (or even staff member) I am required to sign NDAs and Non-Competes and the like. It would feel mighty bad to know that my Directors/investors don't feel honor-bound to not disclose and not compete. Or maybe they will let me off the hook of my pledges?
This subject rates a huge BLECCCH in my book. Talk about massive morale problems. Talk about massive dysfunctional Board relationships.
ilan abehassera
· 2 years ago
Well I guess it is a fair way to invest ! I hope the case doesn't show up too often, because sometimes you might have invested in the wrong player !
Zach Coelius
· 2 years ago
How do you deal with companies that revolve around the same space but have very different solutions? For instance both Feedburner and Tocoda are focused on the online ad space but have different approaches to the problem. It would seem that there may be potential conflicts. If you have the ear of an advertiser and they ask where to run their ads, where do you suggest? If nothing else it seems that as more and more of the web s to revolve around advertising the line might get a little gray in this case.
Perry
· 2 years ago
Glad to see a few recent posts from you fellas lately. I am curious if you feel an obligation not to disclose perhaps unique business methods of a company that you review and then decide is a competitor to the company you already are invested in.
For a very simple and obvious example: if you had invested in myspace and facebook's business plan came across your desk with information about the future roll-out of an important new twist, would you disclose the "twist" to your company -- in this example myspace.
Since VCs don't sign NDAs where is the ethical line drawn? how i it actually practiced in the real-world?
Keep us the great work.
fred wilson
· 2 years ago
Zach - that is great question. though TACODA and FeedBurner are both ad networks, they really don't compete much because their unique value add is different. In fact, they are working together. But it does require some judgement on our part in cases like that.
Perry - we will not sign NDAs, but if we went around disclosing confidential information, we wouldn't see any more business plans. confidentiality is a critical aspect of the VC business.
ventureblogalist
· 2 years ago
Daryn, it's a hedge on management and maybe the business model, but not on the space. So it could be overweighting.
kevin
· 2 years ago
Fred,
Any thoughts on bringing something like the TechStars and YComb type idea tanks to NYC?
Nick
· 2 years ago
Fred,
Turning this around, how do you feel about your Limited Partners backing other VCs in general and specifically those that you compete with on a regular basis?
andre taliercio
· 2 years ago
Tend to agree Fred, an investment means you found the best management team/product/business model in its niche. Investing again in the same niche means that your current investment is failing so are you are trying to edge. Is that the right choice? Answer might be a case by case.
mathew
· 2 years ago
'open marriage' is what kids put on their myspace pages as a joke - and a funny one at that. i am pretty sure that myspace/facebook is the primary venue for this term.
Jean-carl
· 2 years ago
Nice thought
I adapted and translated that article in a french blo
Lance Weatherby
· 2 years ago
I work for the Advanced Technology Development Center (ATDC) down at Georgia Tech. One of the policies at the ATDC is that we do not let competitive companies into the incubator. Since I joined last October I have questioned the wisdom of this from time to time.
Just because a particular entrepreneur comes to us first should not necessarily preclude another with a good concept and plan from joining I have said on more than one occasion. After all our job is to help entrepreneurs launch and build great companies. The more the merrier. Right?
You have me rethinking my stance.
fred wilson
· 2 years ago
Kevin - we wouldn't choose to adopt a Ycombinator type model. i am glad that Paul is doing it, but it's not in our future.
Nick - i have no problem with our LPs backing VCs that we compete with. The fact is our LPs are just not as involved in our business as we are with our portfolio companies.
Lance - you make a good point about first come/first serve. I've often thought about that problem. but i still come away with the conviction not to invest in competing companies.
Robert Dewey
· 2 years ago
This is a good reason why startups need to research the VC's they are interested in, rather than blindly throwing around business plans. First of all, check the focus - make sure you're in the right sector... Then check the team and the portfolio - I wouldn't really want a VC investing in my startup if they are currently on the board of a competitor.
Due diligence is a two way street.
matt lucas
· 2 years ago
invest in a competing business? no way. take investment from a VC with a silimar portfolio company? no way.
at my startup, our investors had a loosely competitive company in their portfolio. it was a disaster. i never knew who's interest my board members were looking out for. we actually ended up OEM'ing our product to the portfolio company. i didn't want to do the deal, but the VCs "as investors" wouldn't consent to a new round of VC until i did the deal.
in my experience, VCs and management need to be 100% aligned. otherwise, distrust perculates and bad things happen.
oh, and by the way, the portfolio company sold for $300M+ to a competitor. sigh.
All Comments
Competing companies are often taking different approaches to filling the same need. If you believe that the need has to be filled, and that one of two competitors is going to be the one to do it, why not hedge your bet?
This is strictly money-speaking though. I understand the complexities and conflicts of actually managing the relationships, and I could make some really bad analogy to an open marriage I'm sure, but I won't!
Fred, as an entreprenuer, I agree with 1,000,000,000,000,000,000,000%
If nothing else, what VC can say with a straight face that there is no breach of fiduciary responsibility when one sits on the Board of a company while also having insider info on a competitor and not continuously cross-disclosing any/all such competitive info (a requirement that would make it impossible to invest in competitors -- that is, if one is honest)?
Also, hell, last time I looked, as a founder or exec or CEO (or even staff member) I am required to sign NDAs and Non-Competes and the like. It would feel mighty bad to know that my Directors/investors don't feel honor-bound to not disclose and not compete. Or maybe they will let me off the hook of my pledges?
This subject rates a huge BLECCCH in my book. Talk about massive morale problems. Talk about massive dysfunctional Board relationships.
Well I guess it is a fair way to invest ! I hope the case doesn't show up too often, because sometimes you might have invested in the wrong player !
How do you deal with companies that revolve around the same space but have very different solutions? For instance both Feedburner and Tocoda are focused on the online ad space but have different approaches to the problem. It would seem that there may be potential conflicts. If you have the ear of an advertiser and they ask where to run their ads, where do you suggest? If nothing else it seems that as more and more of the web s to revolve around advertising the line might get a little gray in this case.
Glad to see a few recent posts from you fellas lately. I am curious if you feel an obligation not to disclose perhaps unique business methods of a company that you review and then decide is a competitor to the company you already are invested in.
For a very simple and obvious example: if you had invested in myspace and facebook's business plan came across your desk with information about the future roll-out of an important new twist, would you disclose the "twist" to your company -- in this example myspace.
Since VCs don't sign NDAs where is the ethical line drawn? how i it actually practiced in the real-world?
Keep us the great work.
Zach - that is great question. though TACODA and FeedBurner are both ad networks, they really don't compete much because their unique value add is different. In fact, they are working together. But it does require some judgement on our part in cases like that.
Perry - we will not sign NDAs, but if we went around disclosing confidential information, we wouldn't see any more business plans. confidentiality is a critical aspect of the VC business.
Daryn, it's a hedge on management and maybe the business model, but not on the space. So it could be overweighting.
Fred,
Any thoughts on bringing something like the TechStars and YComb type idea tanks to NYC?
Fred,
Turning this around, how do you feel about your Limited Partners backing other VCs in general and specifically those that you compete with on a regular basis?
Tend to agree Fred, an investment means you found the best management team/product/business model in its niche. Investing again in the same niche means that your current investment is failing so are you are trying to edge. Is that the right choice? Answer might be a case by case.
'open marriage' is what kids put on their myspace pages as a joke - and a funny one at that. i am pretty sure that myspace/facebook is the primary venue for this term.
Nice thought
I adapted and translated that article in a french blo
I work for the Advanced Technology Development Center (ATDC) down at Georgia Tech. One of the policies at the ATDC is that we do not let competitive companies into the incubator. Since I joined last October I have questioned the wisdom of this from time to time.
Just because a particular entrepreneur comes to us first should not necessarily preclude another with a good concept and plan from joining I have said on more than one occasion. After all our job is to help entrepreneurs launch and build great companies. The more the merrier. Right?
You have me rethinking my stance.
Kevin - we wouldn't choose to adopt a Ycombinator type model. i am glad that Paul is doing it, but it's not in our future.
Nick - i have no problem with our LPs backing VCs that we compete with. The fact is our LPs are just not as involved in our business as we are with our portfolio companies.
Lance - you make a good point about first come/first serve. I've often thought about that problem. but i still come away with the conviction not to invest in competing companies.
This is a good reason why startups need to research the VC's they are interested in, rather than blindly throwing around business plans. First of all, check the focus - make sure you're in the right sector... Then check the team and the portfolio - I wouldn't really want a VC investing in my startup if they are currently on the board of a competitor.
Due diligence is a two way street.
invest in a competing business? no way. take investment from a VC with a silimar portfolio company? no way.
at my startup, our investors had a loosely competitive company in their portfolio. it was a disaster. i never knew who's interest my board members were looking out for. we actually ended up OEM'ing our product to the portfolio company. i didn't want to do the deal, but the VCs "as investors" wouldn't consent to a new round of VC until i did the deal.
in my experience, VCs and management need to be 100% aligned. otherwise, distrust perculates and bad things happen.
oh, and by the way, the portfolio company sold for $300M+ to a competitor. sigh.