VC Cliche of the Week
Conflict of interest is a problem in the venture capital business on multiple levels.
I often find myself quoting the now famous John Doerr cliche "no conflict, no interest".
That doesn’t mean we don’t take conflicts seriously, we do.
But it also means that where there is an area that we are very interested in, we are going to face some tricky situations.
Let me name a few.
Confidentiality conflict – When we identify an area we are interested in investing in, we try to meet with every entrpreneur working in that market. We collect a lot of information that way. We must and do keep that information confidential or else nobody would talk to us. But that information has a way of coming togeter in our brains and informing how we think about markets, business models, leverage points, market entry plans, etc. And it is incredibly hard to keep all that expertise locked up inside our firm. So we are constantly asking ourselves what is the line we cannot cross in educating others. Very tricky stuff to say the least.
Portfolio company conflict – If you like a developing market, say community in the mid 90s, then its likely that you’ll make multiple investments in and around that market. In 1997 at Flatiron, we had investments in Geocities, Starmedia, and eShare. eShare made a chat/community platform that Geocities and Starmedia used. It wasn’t all that stable in the early days. The companies fought with each other. Like parents of squabbling kids, we got dragged into it. Very tricky stuff too.
Relationship conflict – There aren’t that many original ideas. Markets get competitive quickly. And if you’ve been working with serial entrepreneurs for years, you find your friends starting competitve businesses. You get asked to take sides, to choose one over another. And for the reasons stated above, you can’t invest in things that are too close too each other. So that puts relationships at risk. That has to be handled with candor and tact. It’s hard to do right.
There are plenty of other examples of conflict situations. But hopefully these are illustrative of what happens when we and others get interested in stuff.
So we find ourselves in potential conflicts all the time. I think the most important thing is recognize the conflict, verbalize it to yourself, your partners, and everyone involved. Once its out in the open, people can behave accordingly.