Ethics and Morals

At the end of the Berlin talk I posted yesterday, there was a question about ethics. It was directed at startups and how they build a culture of ethical behavior.

But ethics and morals is an issue that extends beyond startups. It is an issue for all businesses and business people.

The Gotham Gal recently told me a story about one of her portfolio companies. I am going to leave names out of this post because I don’t want to get in the middle of something that, at least right now, is between the parties involved.

Her portfolio company went out to raise an early Series A for a business that was in market and ramping. They met with a VC who passed on the deal. A few months later they saw a competitor emerge in the market with an identical business plan and a website that was eerily similar to their own. The CEO of the competitor was the son of the VC who passed on the deal. And the VC was the seed investor in the competitor.

There was no NDA or non-compete between the parties involved so it is not clear that anything illegal transpired here. But it sure feels unethical to me. And I bet it feels unethical to you too.

At USV, we work very hard to avoid these sorts of things. We do not start or incubate businesses. We do not have EIRs sitting in pitch meetings while they think up their next startup. We put big moats around our existing portfolio and try hard not to invest in anything competitive. If we are looking at investing in a competitor, we let the entrepreneur know that before we meet with them.

I am sure we have messed up a little bit here and there over the years on these rules. But we try really hard to live up to our ethics, values, and morals and I think we do a decent job. And we get to see great deals because of that.

This unnamed VC will not see great deals if this behavior continues. You can’t behave this way for long before the market becomes aware of it. So even if the legal system can’t take care of this situation, I believe the market will. As it should.

#VC & Technology

Comments (Archived):

  1. Guest

    It is possible that the VC’s son was already working on his version of solving the same problem. If that was the case, the VC should have said that he was already working with someone trying to solve the problem and make it clear that for that reason he was passing on the deal.Having said that, your assessment is likely to be the case solely based on your post. And if so, TGG and her portfolio company provably have nothing to worry as it takes more than the idea and a initial investment to make something that was someone’s idea into a successful business.

    1. fredwilson

      i agree on both points

    2. Kirsten Lambertsen

      “…it takes more than the idea and a initial investment to make something that was someone’s idea into a successful business.”Total truth. That’s what we all have to remind ourselves.Competition is going to come from somewhere, whether it’s someone ‘stealing’ your idea or not. This won’t hurt the entrepreneur as much as it will hurt that VC. Not to mention, I sure wouldn’t want to be the CEO of second-hand-idea company. Blech.

    3. Richard

      I don’t think it was necessary for the VC to show their hand by stating that they are or know someone whom is actively working on a similar deal. Wouldn’t the entrepreneur unfairly benefit from this information?Like you, I know nothing about the deal, the business etc and will give fred the benefit of the doubt

      1. Guest

        How would they benefit at all? much less unfairly? You can pretty much always assume someone else is working on the stuff you re working on… this happens ALL the time.

        1. Richard

          I could think of several scenarios. What if the VC only invests in los angeles? Could this help the entrepreneur who is thinking about launching in los angeles vs san fran?

    4. John Rhoads

      I think the laziness comments in the entrepreneurs response illuminate these questions substantially as to if this was a very uncomfortable miscommunication or something else

  2. John Petersen

    This is painful. I feel (hope) that this is an extreme edge case, but this is what gives new founders nightmares about sharing their ideas.

  3. Pete Szymanski

    Thank you for sharing this. Yes a strong conviction to consider ethics in choices is required to consistently stay on the right side of the line. It’s a phliosophy, and principles more than set rules, as there are usually factors not just a decision to consider.

  4. William Mougayar

    Interesting how the markets and the crowds will take care of things that legal systems couldn’t. Abraham Lincoln reminder: “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”

    1. pointsnfigures

      but there has to be transparency.

      1. William Mougayar

        Yes, and sometime that transparency will get exposed eventually, like Fred just did. There is a self-correction that happens.

        1. pointsnfigures

          repercussions from exposing it publicly usually are worse for the whistle blower.

          1. William Mougayar

            Well, I see this more than whistle blowing, It’s a systemic warning.

  5. pointsnfigures had the same thing happen to it. I have also seen VCs have a term sheet on a business, and pump an exact same business for info before publicly announcing investment. The problem with ethics is it’s squishy. Ironically, best ethics I have ever seen are in the most hyper competitive environment I ever saw-floor trading. But, it was a closed community that played a continuous game (Game Theory). Everything was pretty much out in the open on the floor, no secrets.The only way to stop it is call them out. In VC world, original deal flow is the life blood. Screw it up, and you are out of business begging to get into deals. In trading, it was getting access to trades-there were social norms to getting them.

    1. Richard

      Sittercity? , how many pitch decks out there are sitting on the laptops of college MBA students with this business model? If it weren’t 5 degrees in most of the country, I would think it was April fools day.

      1. pointsnfigures

        they pitched a VC. VC entrepreneur in residence took the idea and started similar company (founded in 2001

        1. Richard

          Remember George Harrison, my sweet lord?

          1. pointsnfigures


    2. LE

      pump an exact same business for infoIn traditional “small business” this type of thing happens quite frequently and it is probably considered more acceptable than unacceptable.An example might be a supermarket that gives money to the milk delivery guy to determine how much milk his competitor is selling. Knowing the amount of milk a supermarket is selling used to be (could still be but this is from way back so I don’t know for sure) a way to estimate gross revenue. Clearly the milk delivery guy isn’t supposed to divulge that info. But he does in exchange for a few bucks or maybe at no cost. Or maybe he interviews employees under the premise of giving them a job to gather intel. Do you really think things like that don’t happen? They do. And more. It’s business. No different than a sports game really. The idea is to win without getting thrown out of the game.By the way if one person is behaving badly then we can assume he might have made a mistake and the action will stop because he will ruin his reputation. However if many people are doing this and it’s become acceptable behavior (no downside) then we can assume the direction this will all head in.

  6. LIAD

    ‘Even if the legal system can’t take care of things. The market will’#awesome #MarketsMakeTheWorldGoRound

  7. William Mougayar

    I think there’s a bigger theme behind this behavior, and it reminds of what started to happen in 1999, just prior to the 2000 crash. It’s GREED combined with un-sophisticated, un-professional, or un-informed people starting to get involved, whereas they should rather be on the sidelines. Of course, anyone can be duped into a great investment or a VC backing it, but eventually only the good stuff rises to the top; and the fakes, head-fakes and wannabes falter and crash.As they say in French, “A bon entendeur, salut”, which has multiple meanings: “A word to the wise”, “I’ll say no more”, “You have been warned.”

    1. awaldstein

      Disagree.Greed is not the issue, ethics and being beyond the reach of disclosure is the cause.We all want more. Our ethics is what lays the groundwork for what we will do.Been going on since the Pleistocene Era that wherever there was a power broker, wherever there was info that has leverage it could happen.You come from a big company background so maybe you didn’t see this. As a startup person from the 90s pitching for distribution and raising funds from the like of Microsoft, and yes, even HP was a nervous process as you had no protection honestly from the power of the channel you use.

      1. William Mougayar

        Greed and ignorance will distort your ethics. I’m seeing similar situations right now. It’s happening.Arnold, btw, I left the big company in 1995, and have been from Day 0 with the Internet throughout, in the startup world since then. I’m one of the few who cried wolf in 1999 when I saw greed and ignorance starting to take over.Things start to de-generate when people think they can short-cut the time it takes to reach success. You can’t rush the markets, or the market will crush you.

        1. WA

          Never turn your back to the ocean. Even when close to the beach.

    2. Brandon Burns

      “Eventually only the good stuff rises to the top; and the fakes, head-fakes and wannabes falter and crash.”That would be so nice, if only it were actually true. Fakes, head-fakes and wannabes succeed each and everyday, providing inspiration for the next generation of fakes, head-fakes and wannabes.We can tell ourselves some variation of “eventually, good defeats evil,” but we’d only be lying to ourselves. And success will only come after admitting that hard truth and then deciding to work around it instead of waiting for the day in the sun to fall on our laps.

      1. BillMcNeely

        In the #ESPN30for30 film Big Shot John Spano who tried buying the Islanders in the 90’s on a scam mentioned he thought lots of successful folks had begun with a scam and then went legit

      2. William Mougayar

        I meant to single out the unethical behaviors that take place, but not the hard working entrepreneur who keeps trying and trying.

  8. Khalid

    As an entrepreneur i don´t know what attract me to USV. Is it your ethics, is it the rules that you respect and follow, is it the global view that you have, or is it the spirit of entrepreneuship that you have. Making money is a very short term goal. The most important thing is success which means solving problems, serving customers, changing people´s live and behaviors in a positive way, building a strong reputation, having strong relationships with others and of course making money.What do i have to do, to get the respect and attention of USV?

    1. fredwilson

      there are two separate issues. what does it take to get our respect and attention and what does it take to get an investment from USV.the first is easier and you are doing itthe second is hard. we only make 6-8 investments per year. a lot of stars have to align.

  9. InnoAction

    Just as the markets took care of the financiers who brought down the global economy in 2007? Or how markets take care of the myriad pyramid businesses that exist to rob vulnerable network participants? Or how markets resolve unethical and monopolistic behavior in healthcare, energy, and education? Markets are inherently *amoral* … this is why Adam Smith was a moral philosopher first, and an economist second. The “invisible hand” lives within a system of checks and balances, because humans, especially humans with power, repeatedly demonstrate greedy, arrogant, and unethical behavior. It’s a fact that poor people are more generous and more compassionate compared to rich people, on average …

    1. andyswan

      Markets can’t solve what gov’t protects.

      1. InnoAction…The literature is ripe with these types of facts between rich and poor when it comes to generosity, compassion, empathy, etc.

        1. andyswan

          The NYtimes disagrees:… As do others….…And that’s AFTER being forced to “give” a substantial fraction of earnings to the treasury, while the poor receive checks and benefits. Do you not count the taxes paid toward food stamps and welfare as charity? Isn’t that what we are told—that these taxes are compassionate?Enough with the class warfare nonsense. There are assholes and saints at every income level.

          1. LE

            Except that taxes are not optional.That said one of the reasons that poor people are poor is (in addition to a zillion other reasons) is that they aren’t perhaps as selfish as people who have more. Have I noticed a correlation between people with money (and with “success”) and being selfish? Yes I have. Have I noticed a correlation between people who are poor and being more giving? Yes I have.Of course there are all sorts of nuances. People who have not worked hard and earned that money or have had an easier time would tend to be less selfish. My guess for example is that Donald Trump’s daughter Ivanka is less selfish than Donald is.My dad could be both generous and selfish depending on the situation. He was the type that would help a tenant out with all sorts of free advice (which they wrote long thank you letters for) and cut them breaks on rent in some cases (lowering it). On the other hand he was famous for calling two cabs and leaving in the first one that arrived. He didn’t care about the driver of the 2nd cab. Did the same with tow trucks I think. Had no empathy for that. Most likely because he had experienced similar shitty things happening to him is my guess.

      2. InnoAction

        Absolute free markets are not “perfect markets,” they will and do tend towards monopolies in the absence of anti-trust regulations. But how would this utopian libertarian world being proposed work without any checks and balances or regulation? Shall we get rid of the FDA or NTSB, for example, let drug companies and airlines figure out safety and efficacy standards based on their “ethics & morals?”

        1. andyswan

          Monopolies are impossible without gov’t protection.

          1. fredwilson

            sustaining them is probably impossible without gov’t protection but microsoft in the 90s and google right now sure look(ed) like monopolies and neither had gov’t protection

          2. andyswan

            Temporary monopolies are possible for a flash in the pan but I’m sure you didn’t invest in duckduckgo because you thought Feds would take down Google.

          3. fredwilson

            we invested in DDG because we believed a small but large enough minority of search users would value privacy over everything else. we have been right about that.

          4. andyswan

            Love it

      3. John Rhoads

        Trust is the grease on the gears of a market

    2. Liban Mahamed

      The invisible hand is an illuison, the assumption is a free market with new competitors coming in and out, it is just not feasible.The system can not police itself, you need tough regulators and honest political leaders. Both lacking.Politicians are in the pocket of campaign donors and they appoint regulators.What we have is more of a crony capitalism.Lincoln and Jefferson are rolling in their graves.

    3. Matt Zagaja

      I’m not sure how education is a monopoly. In both lower and higher ed there are plenty of options, public and private, at a multitude of price points.

  10. Barry Nolan

    My rule. If in a situation you find yourself asking the question “is this ethical?”, you can be sure it’s not.

  11. stevebrewer

    It’s great for the honest players:1) You avoided going into business with an unethical partner2) Further validates you market / solution3) More competition = more awareness of the space = higher valuations and more customers

  12. andyswan

    The VC won’t be called out by name, there will be no real damage to him.Because when it comes to offending moneymen, entrepreneurs are (generally) complete wusses.

    1. pointsnfigures

      the price they have to pay is too high.

    2. fredwilson

      i might if this situation is not resolved satisfactorily by the parties involved

      1. Guy Lepage

        Very well played sir.. But PLEASE do call out the parties if they do not fix this. It’s up to “the community”, the community both here in NYC and in the Valley, to police itself.

      2. pointsnfigures

        Respectfully, you are in a different situation than an entrepreneur. But, I am appreciative you are leading. It’s up to people at the top to lead and set the tone. Hopefully, people follow you. Thanks.

      3. LE

        So let me repeat that knowing only what I know now, based on this post, that would involve risk that outweighs the upside.If you want to do payback better to do it quietly sometime in the future not publicly.

      4. Yinka!

        Not expecting you to comment given the context, but I can’t help wondering if there can be a satisfactory resolution at this stage, i.e. the errant company’s already launched, an apology from VC/son would probably mean jacksh*t, removal of copied website material/format is an expected minimum but doesn’t resolve anything per se, etc. Unless the company closes or dives into entirely different space, one can still assume that it is using material from the 1st company.

      5. andrewmaguire

        I’m really glad to hear it. To me the critical point here is that unethical behavior doesn’t happen in a vacuum. The entrepreneur might believe that he can crush this new competitor, but as an entrepreneur I would be be deeply uncomfortable having that VC as a major shareholder on my cap table because having a low integrity partner of that importance is dangerous. It is unlikely that this behavior is an isolated incident. Fred – if knowing about this case would make you feel uneasy with having your portfolio companies take a major round from this VC, then the broader community of entrepreneurs should have that same information.

    3. Matt Zagaja

      Maybe not, but if they’re in some kind of negotiation or discussion it is probably helpful for the entrepreneur to have this card in his deck, and I’m sure to the other party this is quite the warning shot across the bow.

    4. LE

      Entrepreneurs, if we mean the young type, are grabbing for the brass ring and so they are going to suck up and not piss off those that could potentially help them. Makes total sense.Later, in the case of “a Fred” someone that has fuck you money, they also have “something to lose”. So they can’t and shouldn’t act recklessly.

      1. andyswan

        Agree 100%. Also as you get into your 30s you realize that fuck-you money doesn’t take that much money…what it really takes is the confidence that you can and will be able to create your own wealth.

      2. Richard

        Vengeance is a dish best served cold

  13. Liban Mahamed

    The VC beside being dishonest and cheater, he or she is risking a litigation here.If the pitch meeting and the subsequent emergence of the rival company can be documented with timelines.In finance and business there is a fiduciary duty and I suspect if the dates and events can be proven the VC will be hit with a huge judgment.Good chance juries will not see this as a funny or fair.

  14. BillMcNeely

    As an entrepreneur I had this happen with DelivrToMe and Convoyer.Partner 1 said “Bill does not know anything about building an app we can do this idea without him.”Partner 2 said “yes but do you know how to move a truck without four wheels across open Afghan desert for 60 miles without access to a crane or tow truck?” ( answer 3 stacks of rocks increasing in height, 1 jack, a couple of rachet straps and 20 humans to lift/slide onto another pickup trucks bed!)Technology without Subject Matter Knowledge is a loser.

  15. Brandon Burns

    I read a 2015 predictions article that claimed Uber will be the defining IPO of the year, and most people who previously cared about the company’s lack of ethics will forget about all that because “money talks.”Assholes finish first all the time, especially in the world of business. That will never change, and as long as it remains true, the next generation will always have ample examples of how to win in business and in life by being a dick.Unless there are more nice guys at the top to provide a louder voice than the assholes.Too bad being a nice person is rarely criteria for investing in a founder, or in a VC for that matter. So the cycle will continue. Sigh.

    1. Sunny Khamkar

      Good point re: Uber’s morality.This is a tough one because not only is there one but dozens of accounts of unethical behavior masked as being “competitive” at Uber. I don’t know the specifics of the claims, but historically a dishonest and unethical culture will seep into every piece of the organization and its only a matter of time before consumers and business partners will be negatively affected (and become aware). It cant be turned off when you simply are hiring like minded folks that don’t value ethics at the core of the company.A career in tech lasts many years and spans potentially many companies. People don’t forget bad ethics, and a good general rule of thumb is from Buffett – “Don’t do anything you wouldn’t want your mother to read about the next morning in the Wall Street Journal.”

    2. LE

      the next generation will always have ample examples of how to win in business and in life by being a dick.Not entirely true Brandon. Being “a dick” is a skill that takes balance and attention to detail. Most people who end up fucking up don’t know how to navigate that fine line. They are just emulating others behavior without knowing the specifics.Like driving a car fast. Without considering the road conditions or the type of car.Details matter. Non business related example with my wife and Bill Deblasio. I told her that the cops were turning their backs on Deblasio at the funerals and disrespecting him. So I said “what do you think I think about that?”. And she said “oh you must love it because you don’t like Deblasio”. And I said “no you are wrong I don’t like Deblasio but I’m a firm believer in the rule of law and the chain of command and the pecking order. So I think the cops are doing the wrong thing I don’t support that even though I totally support the Police”.

      1. kev polonski

        If you are a firm believe in the “chain of command” perhaps you also believe that those higher up in the chain of command should not say or do reckless things that will affect those under them? And by affect them, I mean make them the target of assassinations?

        1. LE

          chain of command should not say or do reckless things that will affect those under them? And by affect them, I mean make them the target of assassinations?That’s not what happened. You have a mentally ill person and you can’t go around doing things differently because some random 1 in 1,000,000 mentally ill individual might go off as a result of something that you say. Unless of course you want to argue that someone who decides to kill a police officer is acting rationally and has all their wits about them as well as common sense.Obviously I don’t think that Deblasio is correct in how he has acted with respect to the police I think he is wrong from what I see. But this type of “protest” is not the right want to handle things in an organization that needs to uphold the law. I can’t imagine that soldiers in the military would get away with that type of behavior regardless of what the higher ups did.

    3. Matt Zagaja

      Both assholes and nice people succeed in life. However I doubt that being an asshole has a causal relationship with success, it flies in the face of logic and experience. Rather assholes often succeed in spite of this trait. We are all human with the included flaws and failures. Plenty of successful people adopt bad habits whether it is drug use, messy desks, or inattentiveness to their personal lives. I do not believe for one second that abandoning my daughter like Steve Jobs did will cause me to invent an iPhone.Conversely being nice is not going to cause your product to work better or for the market to want it more. However it can help. People generally want to be around pleasant people. Therefore a good work environment can help you recruit better employees (… that might lead to more success. Being pleasant can mean more invitations to happy hours and other experiences with people that can help you in life.The other thing to realize is that the customers do not have to live with the personality of the CEO. Their relationship is with the Uber drivers or with the genius bar and sales people at the Apple Store. You do not buy Oreos and ask yourself what the personality of the CEO of Nabisco is like. In fact I do not even know who the CEO or management are at Nabisco in spite of buying their (not always healthy) products.

  16. Brian Hirsch

    Fred I wish the behavior you describe above was rare in our industry. Reputation should be everything in this business and you would think once the market becomes aware of it there would be some impact but it hasn’t happened. We’ve seen numerous examples of unethical behavior across too many firms to count over the years. Some are brand names that have been around for a long time and amazingly continue to have good reputations in the general market.Every year I get several emails from our founders asking me if they should respond to xyz fund that has inbounded to learn more about their business only to discover they have clearly competitive portfolio companies.We’ve also seen known and respected funds show supposedly sincere interest in investing in one of our portfolio companies only to fund a competitor immediately thereafter. It was clear they were pumping our portfolio company for info. In fact, just in the last 60 days we’ve had this happen within our portfolio.I’ve heard many stories from other VC funds over the years that have encountered the same behavior.The issue is the VC market is opaque while funds are also interdependent on each other through multiple funding rounds. As a result, bad behavior doesn’t get “outed” as it should.One partner in a good fund might be unethical while others are not. What happens when someone outs a partner in a fund that has 9 ethical partners but 1 bad apple? I can imagine if I did that it would cause issues for the rest of my portfolio every time they pitch that firm for a later stage round.I wish as you state the market will clean this up eventually but I haven’t seen that happen over the years. It’s a shame and puts a black eye on our industry.

    1. fredwilson

      the emergence of two way media (blogs, twitter, etc) has changed the startup world for the better. it hasn’t impacted this issue as much as it can and should. but i think it can and it will

    2. LE

      We’ve also seen known and respected funds show supposedly sincere interest in investing in one of our portfolio companies only to fund a competitor immediately thereafter. It was clear they were pumping our portfolio company for info. In fact, just in the last 60 days we’ve had this happen within our portfolio.I wish as you state the market will clean this up eventually but I haven’t seen that happen over the years.You can’t control what the market does when you have competition and no group controlling things and no “certification” by a board in other words “a stick” that insures proper behavior. (Like realtors as one example..)So I will trot out my saying here again. “You can only be as honest as your competitors”.See where this is going? When it gets to a tipping point it will and could be “everyman for himself” and more or less accepted behavior in the industry.You know medicine used to be all about doing the right thing for the patient. And the people who went into it didn’t have a bad bone in their body. Now you find physicians and hospitals, because of economic pressure, doing things that would be unheard of in recent years in order to survive.

  17. Kirsten Lambertsen

    Isn’t (wasn’t) TheFunded supposed to be like a Glassdoor about VC’s?(I tried to go just now and the site’s hanging.)

    1. fredwilson

      sadly The Funded was taken over by bitter entrepreneurs with an axe to grind and it lost objectivity. that’s always an issue with those sorts of services

      1. Kirsten Lambertsen

        There are ‘bitter entrepreneurs?’ ;-)That’s too bad. Seems like there ought to be a way to do that right.

        1. fredwilson

          there is

      2. John Fazzolari

        Maybe Dunwello will work out nicely as a way for new entrepreneurs to learn a little bit about other founders experiences with different investors. This isn’t really why Matt is building it but have seen a few investors receive reviews already

  18. Rohan

    Why do VC firms have an EIR? What is the rationale?

    1. fredwilson

      good question. we have avoided it.

    2. Guy Lepage

      We try very hard to avoid discussions with VC’sthat have EIR’s.. Always seemed sketchy to me.

    3. John Rhoads

      They’ll start another company and you pay them salary while they “recharge” to have some priority in their capital raiseand they give from the trenches advice to portfolio companies and or domain expertise to the firm.

      1. Rohan


    4. Andrew Kennedy

      I am going to chime in here on the side of EIRs. Note, I am not one nor have I been one. The VC or investment firm has capital and is in the business of building / maintaining a network — with that comes a level of industry credibility (assuming they are reputable). An entrepreneur on the other hand has proven operating experience and domain expertise in a specific area. These two are synergistic is the entrepreneuer wants to build out his/her network while working on a specific idea and at the same time looking to put together a team. Once everything is lined up (we all know this can take months to a year) then the VC will get a first look to fund the business at attractive terms. This seems pretty darn logical to me — granted other EIR type situations might be less thought out. fwiw — the EIR from Upfront Capital started MakeSpace. He was first EIR (Mark Suster hired him) and then funded his business.

      1. Rohan

        Thank you for that Andrew!

      2. Dasher

        The problem is that EIRs are in conflict with entrepreneurs pitching ideas to the VC. It certainly can be perceived that way. That is probably why Fred/AVC are avoiding it and Kudos to them. An an entrepreneur I would be much more comfortable to pitching VCs that do not have EIRs (particularly in my domain) than if they do.

    5. Dan T

      I was in an EIR role for a while and it seemed real obvious to both sides. I was looking for my next opportunity. The VC was looking for their next opportunities. I helped them evaluate a few deals where I had some expertise, and they got to know me better and got insight on new opportunites from an operator. In return, I knew that if I ran into something independently that I wanted to join that needed funding – I had a good source to go to for funding. I trusted they were not assholes that would take advantage of the situation and they trusted me that I was not asshole that would take advantage of the situation. The businesses we looked at trusted me and them as well. Another VC introduced me to a business that I ended up joining/leading and the firm where I was an EIR was one of the investors – – almost. In the end they did not participate, but it all worked out well.

      1. Rohan

        Gotcha. Thank you for sharing!

  19. Guy Lepage

    As an entrepreneur looking for funding, I have worked extremely hard to garner the relationships with some of the most talented and respected Angel Investors and VC’s within the tech startup community. I strongly believe and expect “the community” to not only vet out unethical investors and entrepreneurs alike but demand that the parties involved are made public. @fred @william, Please divulge their names..

  20. AlexBangash

    An LP once told that she didn’t care if a VC uses unethical behavior with entrepreneurs to get the best results for the investors.My response: The problem with this attitude is that those that use unethical behavior with one constituent with also do so with others.It’s only a matter of time and opportunity that the same VC will try to shortchange and behave unethically their LP investors.I have yet to find to a VC who s known for behaving ethically with founders who then found herself embroiled in some sort of fraud.

    1. fredwilson


    2. Matt Zagaja

      “You can’t keep snakes in your backyard and expect them to only bite your neighbors,” – Hillary Clinton.

      1. pointsnfigures

        but you can marry them…heh

    3. LE

      My response: The problem with this attitude is that those that use unethical behavior with one constituent with also do so with others.Unfortunately that’s not correct. People can and do draw lines around their behavior and act differently depending on the circumstances. Nobody is 100% pure or 100% dishonest. This is not 0’s or 1’s.As much as I don’t want to deal with someone who is “dishonest” (which varies by the circumstances and/or situation) someone who is “to honest” often can’t get the job done. Part of business is not revealing your entire hand. Business is business and it takes stretching limits and taking chances.The people who have the hardest time with this concept are the people who can’t see the nuance of it all and have an appropriate way to act depending on the situation. Those are the people (from my experience) who get into trouble.

      1. AlexBangash

        You may think so, but I prefer not to deal with nuanced unethical people. That was the issue with Madoff. Most people thought he was gaming the system–front running–but that they would be part of the con. You can’t expect to be part of the con and not be conned yourself.I agree with you that no one is 100% pure or dishonest. But some people try to do the right thing. And some take advantage of all.

        1. LE

          Most people thought he was gaming the system–front running–but that they would be part of the con.I don’t disagree with that. The problem is not the clear cases the problem is when the facts aren’t that clear.

    4. John Rhoads

      The fact that most vcs fail after their first fund probably contributes to this short horizon thinking.Gotta be long run greedy

  21. fredwilson

    this is what the founder of the subject company said to me in an email this morning after seeing my post:I really don’t think you need to out them at this point, or potentially ever. I’m a pretty firm believer that this type of behavior is a reflection of their overall approach to things and in the end, they will fall by the wayside. See, it’s not just that they “copied” our idea — we’re all fine with that. After all, as any intellectual property lawyer will tell you, you can’t really protect ideas. And we like competition. We know we’re the best at what we do and when we see people trying to do something similar, we think it validates the market more than acts like a threat.Had they been able to outspend us by a 100x factor and kill us by underpricing, then it would be a different story. Had they outspent us and marketed so much the point that we looked like the copy and not the original, it would be a different story. What is most bothersome, other than the lack of disclosure or even a “thank you” is that they copied a lot of our details. They copied and pasted in our customer service emails. They stole some product photos. They were lazy. If they were going to launch a competitor, they could have put more of their own spin on things instead of acting like a knockoff.In the end, we’ll crush them 🙂

    1. Richard

      Ethics always requires a debate so please see this comment as that: based on “copying customer service emails”, it sure seems like the company was actively in business, so they were in the public domain. What is the expectation of privacy at this point?

      1. LE

        The “copying customer service emails” is a little whiny in my opinion. As one of the first people who did what I do people have been copying things that I have done since the 90’s. In something that I just started doing recently (last 2 years or so) someone I pitched told me about another person who literally used the same wording that I do (which I made up) so I know that they got the idea from me.Look I’m not going to give you this “imitation is the best form of flattery” BS since obviously it bothers me that they copied me. But that’s the way business works.

        1. Richard

          Yep, I’ve been taken a number of times (always include damages in contracts!!, if u do x you owe me y) btw, “We will crush them” may not be the best choice of words when arguing ethics.

          1. LE

            Right because it becomes a “we can do this because they drew first blood” rationalization.

      2. Matt Zagaja

        Maybe not a privacy interest but there certainly is a copyright interest in the e-mail text and photography.

        1. Richard

          As you know facts , concepts and ideas are not protected by copyright. Highly doubtful you can protect an email.The photo to the extent that’s it is not in the public domain is of course protected.

    2. Michael Frank

      Great email reply. The idea that he is getting to that followers can copy your current version but they can’t copy your road map before it’s manifest is totally true.

      1. davidblerner

        yes but the larger point is that the *investor* is a low-life…. and other young entrepreneurs will keep pitching him unwittingly…

    3. Brandon Burns

      Great attitude. Still, we can tell ourselves that good will prevail in the end, without really knowing for sure, or we can ensure it happens.Out them anyway. Ensure that evil fails. That would be the ultimate good deed.

      1. LE

        Out them anyway.Look I’m as curious as anyone. But it’s pretty clear that it’s not in Fred or Joannes best interest to out them. What do they gain by doing that? (Please explain.)By the way why do you think that by outing them (which as mentioned I don’t agree with) will “ensure that evil fails”.And where do you come off using the word “evil” to describe this?Do you really think that the end customer or user of the service would ever care or hear about this at all? They won’t. Nor will people who decide to work for the company. In the end they will evaluate the opportunity and how it benefits them and make a decision which they will very likely rationalize.

        1. Brandon Burns

          I say out the VC if 1) it’s clear they’re in the wrong, and 2) it will hurt them in a meaningful way.Neither are confirmed, but if both end up being true then that’s when it would be worth it for Fred and/or Joanne to out them. They get to take an investor competitor out of the game by exposing that they’re shady, and making it so that no entrepreneur would pitch them for fear they’d be ripped off, too. That would 100% be in Fred and Joanne’s interest.

          1. LE

            making it so that no entrepreneur would pitch them for fear they’d be ripped off, too.Fred and Joanne are not in the business of doing something like that at risk to themselves. You simply don’t do things like that. [1]Neither are confirmedLet’s talk about that. Exactly how do you think Fred and Joanne can confirm the facts of the story to the degree necessary to “save entrepreneurs”? Do they really have the time to do that? They don’t. They get to take an investor competitor out of the game by exposing that they’re shadyTaking out 1 competitor is meaningless in a game with plenty of competitors. Not worth the risk vs. the upside.Bottom line: You are having an emotional reaction to a business situation. It’s causing you not to see the risk in what you are proposing.[1] And let’s say Brandon that they do decide to take your advice. So when the news gets out let’s say someone reads it and “thinks” that Fred and Joanne didn’t do right by them in the past. So they decide to use this now as an opportunity to disclose that fact to the world. And it doesn’t matter if it’s true or not. See the risk? Then what happens? Can of worms. Pandora’s box. What’s the upside again?

          2. Brandon Burns

            Debating these points isn’t going to go anywhere. Maybe you’re right. Maybe not. It’s complicated.But I generally feel that the “taking action can cause more harm than inaction” point of view is core to what’s wrong with the world.My comments are based on that ideal more than the specifics of this case.

          3. LE

            That’s why I gave examples of why I thought action would cause more harm.

          4. Brandon Burns

            It probably would. But I don’t care. :-)Convenient for me to say, obviously.Either way, neither Fred nor Joanne are afraid to fall on their swords when it’s worth it. Maybe they’ll take up this cause, too, when the situation is right.

        2. John Rhoads

          Seems like outing then and the calls for named comments have similarities.Not exactly the same, but the spirit of it is quite similar.Maybe this is a request for startups? Wikileaks for shady business dealings?

          1. LE

            Except that what you are proposing is a site where people can offer subjective commentary. Not the posting of actual (somewhat limited by the way) “evidence” or wrongdoing.

          2. John Rhoads

            Nah man. That’s NOT what I’m proposing. That’s what’s happening here…

      2. Erin

        It’s not Fred or Joanne’s job to out them. It’s the founder’s job to have a conversation with the VC.

    4. John Petersen

      This is definitely a great response. Focus on building your vision and out-execute them.If they are so lazy as to not change the copy or images, they’re definitely not going to have what it takes to put in the effort required to build a successful business.

    5. Salt Shaker

      Many commenters are emploring Fred to out the unethical VC. Frankly, I’m not sure that’s Fred’s place here. He likely doesn’t know all the facts, and if he misrepresents the situation he’s potentially setting himself up for a libel/slander suit. The entrepreneur certainly has the right to call out the investor, but s/he has admirably taken the high ground. My hunch is the VC will eventually be outed at some point by virtue of the pub, interest and ethical reputation Fed’s blog has earned within the tech and VC community. Too small an industry to hide. Court of public opinion will eventually win out.One’s reputation is a lot harder to earn than it is to lose. Fragile.

      1. Aaron Fyke

        Yes, but the apparent contradiction is obvious. Fred’s remedy is that the market will take care of this behavior. At the same time, with this VC not being named, there is no mechanism for the market to respond. So, what we’re saying is that, rather than have the strong megaphone of the internet do the information dissemination, we will have the weaker market signal of face to face meetings, personal relationships, and one on one contact slowly leak the information out. This seems 180degrees opposed to what the value of the internet is. The Funded was supposed to address this, but I’m not sure if it has worked as the market mechanism either.Yet, I’ll concede, it’s not Fred’s place necessarily to out the VC. It’s not in his best interests. It’s probably not in the interests of the entrepreneur to out the VC as well (the damage has already been done). So, who benefits? The broader entrepreneurial population? So, there actually isn’t as strong a market correcting force as we’d hope there is.

        1. ShanaC

          you want to name name but not create witch hunts. therein lays the problem

    6. Twain Twain

      The thing about copycats and knock-offs is that they SEEM to gain a superficial edge. However, they never have the heart, authenticity or innovation of the original which enables them to execute better in the long run.I wrote in a comment to pointsandfigures yesterday: “The worst thing is that when those negative experiences happen, we can’t name and shame those lousy bad actors because of our own sense of decorum.We process the disappointment and disbelief in the bad behavior of others and simply move forward, optimistic and hopeful we’ll meet more decent people………And we do.”Last week I met up with my former UBS manager. He went on to create the #1 Secondaries team in the world and is now Global Head of Secondaries at another bank. He asked me if I’d shared my startup idea with any investors yet because he believes it’s an infrastructure play.I made him aware of the internecine (value-destroying) behavior that happens out there: in-fighting between co-founders; investors picking founders’ brains with no intention of helping them; and women not getting the credit or support — even though we’re likely to solve problems differently and avoid the “echo chamber” and groupthink that happens when a product and development team isn’t diverse.Those are some of the reasons I refused to share any images or materials about my system until the patent had been published and the trademarks secured. And then only to people like my former UBS manager who’s a beacon of ethics, giving credit on merits regardless of gender and has been for the 15 years I’ve known him.I do appreciate the Chris Dixons saying we should share our startup ideas freely and openly in order to gain valuable feedback:*…In principle, sharing ideas openly and freely helps to catalyze even better innovation and services for everyone and moves our world and species forward.However, founders and investors alike need to know that there are people they can TRUST who share their values, ethics and principles and then there are others who simply don’t have that ethics compass.We can’t expect them to change their behaviors even if we “name and shame” them because it’s in their nature to “win at all costs and screw everyone else”.We can, though, hold true to our own ethics and decorum and focus on our own to-do’s that earn us our successes by merit.

    7. Vivek Kumar

      Just the fact that VC’s might have the potential to outspend the entrepreneur by 10x or 100x is a scary thought. Hopefully these situations are rare enough so that the culture of sharing ideas freely and openly in order to drive more innovation remains prevalent.

    8. Gustavo

      I appreciate the entrepreneur’s honesty as far as his own ethical decision process goes. See, something doesn’t become unethical unless it really hurts. Let’s put up a plaque with “no harm, no foul” on it and enshrine it with “love conquers all” and other great principles !

  22. Val Tsanev

    I am originally from Bulgaria, have worked 10 years on Wall Street and now I am running my own startup, along the way I have met many ethically challenged people. The silver lining is that unlike in Bulgaria, in the US, at least in most cases, the system works in such a way that those ethically challenged business people whether VCs or Wall Street executive end up in a very unfortunate way and the question is not if, but when.The great VCs like USV add tremendous value to the startup ecosystem but there are many VCs, which are extremely ethically challenged and superficial. All VCs need to realize that they will not exist without the entrepreneurs being there, the opposite is not true, there are many sources of capital outside of VCs and there are many people outside the VC world who can help with connections, hiring, client acquisitions, etc.

  23. Pete Griffiths

    This kind of behavior is common throughout business, not just startups. I have seen creative work stolen by huge media companies. Unethical behavior is rampant.

    1. John Rhoads

      There are also different ethical norms in different parts of the world which further complicated this conversation

      1. Pete Griffiths

        Very true.

  24. RDC

    Has the VC behaved like this in the past? If so, was the entrepreneur aware or are they the unlucky first?

  25. davidblerner

    so glad you went public with this Fred- frankly it really takes the leaders of our community to speak up for the low-lifes to feel chastened…. Calling-them out by name would actually take this to a whole ‘nother level… out of frustration I wrote this some time ago: “Be A F’ing Pro”… . I’ve seen so much of this bad behavior and yet there’s always a line of unwitting newbies waiting to talk to these scoundrels…

  26. Alejandro Cosentino

    Unfortunately, that is quite common across Latin America where the local VCs are not sophisticated, their investment professionals are “too clever” and VC ethics are in its infancy. Although execution is 95% of the success, there are some business with key critical components you must protect (in my industry, peer to peer lending, legal structures are critical) so I decided to pass in all the due diligences if we cannot get NDAs. This makes the fund raising more selective but at least I am not feeding potential competitors. Maybe this is one of the main reason to direct my efforts to well known VCs and ask for references before visiting them.

  27. Robert Heiblim

    This is an important one Fred, thank you. I have seen this over and over, and as you conclude it rarely works though it can hurt the innovator and cost time and money. It is also true that NDAs and even patents are not true barriers to copying, but ethical behavior is one of the base requirements for business and innovation to flourish. Life and business are marathons not sprints and memory is long, and execution in the end is usually the most important, but optics matter too and unscrupulous players should keep that in mind as well. Having met you, I know you walk your talk. All the best.

  28. LE

    They met with a VC who passed on the deal. A few months later they saw a competitor emerge in the market with an identical business plan and a website that was eerily similar to their own. The CEO of the competitor was the son of the VC who passed on the deal. And the VC was the seed investor in the competitor.Well what we don’t know (not enough detail above) is if the son of the VC had gotten the idea from his father specifically after his father had met with the company. Or had they been thinking of doing something similar and the father (VC) shared the details of the meeting with them? Or?Let’s take this one step further. Let’s say you are at one of the many conferences that you attend and someone walks up and pitches you on an idea. Maybe you sit down with them, ask questions and so on. Maybe you just listen for 5 minutes. Later you find out that one of your own children wants to do something similar. Maybe they thought about it 5 months ago but never told you. Do you tell them “sorry you can’t do that [1] and I won’t give you seed money … you see someone already pitched me on that idea?”. I guess it would depend exactly on what you had agreed to by hearing someone’s idea or pitch. But hard to believe that what you agreed to, was “I can’t ever talk about this idea, at all, with anyone, or invest in something similar, and also I have to remember what you have told me exactly (among the million other things I have to remember) and not share that with anyone at all.” That’s a big burden. You take a great deal of meetings and speak to a great deal of people.Specifically the “remember what you told me and that you told it to me”. Do you really remember everywhere you get an idea or a suggestion from? Nobody does, especially you with your busy packed schedule.Now from the way you are describing this it’s very clear that you think the wrong thing happened. So it probably did since most of us trust your judgement in these things. But it’s hard to say conclusively w/o knowing more details (reason trials take weeks or months the fact matter and there are 2 sides to a story).Anyway apparently the VC thought the idea was good enough for his son to do and figured that his son succeeding was more important than his own reputation. (Assuming facts are correct of course.) My father would never ever do something like that. All he ever cared about was what people thought of him. I would only dream that he would have taken a bullet for me like that.[1] And if they do the idea and you don’t invest it will still look like you told them something even if you didn’t. Nobody is going to believe you when you tell them you didn’t.

  29. JJ Donovan

    Is it possible in a future post to report on the Gotham Gal’s investment in said such company? It would be nice to support them if possible.

  30. Ben Brooks

    This is an important post. My business education at Univ of Denver’s Daniels College of Business has us talk at length about ethics in business. It wasn’t about what you could get by a regulator, or a strategy that you could spin with PR, or even how you could interpret a contract in a different way. It wasn’t at all about what you could get away with — it was about what is right and fair, in particular when nobody is watching. It has nothing to do with if you will get caught or if you are even allowed to do it (as in the case above without a NDA), it is all about is this the right thing to do.Answering that question, requires quite a bit of critical thinking, and even greater emotional steadiness. I read lots about startups and tech and VC’s (and am in the process of launching my own startup here in NYC this spring) and I rarely see anything on ethics. People will talk all about how fancy a firm’s office is or what kind of perks they have, but seldom do I hear about what they are doing to ensure each of their team members consistently acts in a way that is ethical, in particular when nobody is looking.Great post Fred!

    1. karen_e

      Critical thinking + emotional steadiness = great way to bundle the topic of business ethics!

      1. Ben Brooks

        Never said it that way before but agree – it is a pithy summation of biz ethics!

  31. David Semeria

    So much for ideas being worthless.

  32. Hershberg

    My former company flirted with the idea of raising money on a couple of different occasions before deciding not to pursue it. As we went through that process, we had a series of meetings with a very well known/respected VC who expressed what seemed to be serious interest in our business. He asked that we provide a significant information about the company as part of the diligence process — full customer lists, all financial info, pricing structure/strategies, etc. Most of this info had to be pulled together from scratch by a number of our people, which was obviously hugely distracting for everyone involved.We reached out to the VC a few days later to confirm he’d received what we’d sent and to see if he had any questions we could address. He didn’t respond to that call. He didn’t respond to the half dozen emails we sent or calls we made over the next few weeks either. In fact, we never heard from him again. A couple of months later we saw that he was funding a direct competitor.The good news is that the competitor ultimately failed, even after raising several rounds of VC that totaled tens of millions of dollars. Unfortunately, this investor still regularly appears on various “Top Investor” lists, largely because he’a managed to become involved with a handful of very successful companies in recent years. That’s one of the main reasons why I think that, while there’s some obvious merit to rating VC’s based on how they work with their portfolio companies, I’m equally as interested in knowing how they treat the entrepreneurs they don’t end up working with.

    1. LE

      So what is the “crime” here exactly?The facts that you have presented:1) The VC asked you for information which you provided in the hopes of getting funding. Providing the info took a great deal of work. So does someone having to fly in to meet Fred for a meeting with no guarantees at all that they will get funded. Part of what you had to do. The “distraction” or work involved doesn’t make the VC a bad person in itself under all circumstances. I’m sure many people have walked into a store with no intention of buying and wasted someone’s time. Or called out a contractor for a quote knowing they wouldn’t use that contractor and so on. Although sometimes they might so they rationalize. (Or a car dealer, the list is endless). And if the car dealer follows up most people will ignore if they have decided they don’t want to buy from that dealer. “Most” does not mean “all” by the way.2) The VC didn’t acknowledge getting the info or reply when you wrote to him. Not unusual in business. People are “shiny ball” oriented. They are there when they need you and not there when they don’t or don’t have anything to gain. This isn’t the family doctor. Not unusual in business in the least. I could give hundreds of examples of a salesman doing the same thing “after getting the order”. All the sudden they disappear. It’s business. No crying in baseball and all of that (and of course it bothers me as well by the way..)3) “A couple of months later we saw that he was funding a direct competitor.”. So you aren’t even offering that they did anything wrong. So they funded a direct competitor do you think that taking a meeting with you means they can’t do that? Given the way you presented the facts doesn’t seem that way unless there is something being left out here.4) “I’m equally as interested in knowing how they treat the entrepreneurs they don’t end up working with.”On #4, What is your suggestion here exactly? If the VC had communicated with you would you feel better enough that you wouldn’t have written the above?

    2. LE

      Wanted to add that the way that you wrote this seems to want to say “VC met with us, stole our idea, and gave it to another investment”. Part of the point of what I wrote below is that the story that you are telling doesn’t show that is what actually happened.

      1. Hershberg

        I don’t believe the investor took our idea and gave it to someone else — there were a number of other companies working on the same problem. But It’s impossible to believe this person was behaving in an ethical manner when he requested a ton of info from us, received everything he’d asked for, went completely dark, and then funded a direct competitor. At minimum, he was just using us to get smarter on the category.I’m fully aware of how the process works and have no issue with anyone who didn’t think an investment made sense for them. Either way, I believe investors should treat entrepreneurs with a certain level of professionalism and respect, particularly when they’ve asked them to put a significant amount of work into responding to their requests. If nothing else, his “crime” is acting like a complete asshole.And while I’d like to believe that this type of behavior ultimately comes back to hurt someone, that sadly has not happened in this case.

        1. LE

          But It’s impossible to believe this person was behaving in an ethical manner when he requested a ton of info from us, received everything he’d asked for, went completely dark, and then funded a direct competitor. At minimum, he was just using us to get smarter on the category.While what you are saying is entirely possible, I could also make a case that if he knew he was doing something wrong, he would have put some effort into covering his tracks or appearing less obvious. His actions in a way don’t show consciousness of guilt. I almost feel it would have been more typical if he was doing what you think he did to try then tried to create a red herring to distract you. After all, not responding certainly made you more suspicious, not less.I totally agree that from a PR and marketing standpoint it would have been better to not go radio silent and to acknowledge emails from you. Otoh, I’m sure this particular investor has been around the block enough to have deals snatched from him when entrepreneurs who appeared to be ready, willing and able decided that it was in their best interest to go with another VC. (Such is the life everyone has chosen). [1][1] Hey I had a case last week where I agreed to rent some space to a Physician that had water damage in their unit in the same complex that I own a few units in. I did a great deal of legwork to make that deal happen and it seemed like it was a absolute sure bet. All paid for by an insurance company. I was gambling that the deal would happen all the signs pointed in that direction. I even cut off communication with someone else who presented a long term lease deal. (Calculated risk not claiming I was being a nice guy). Part of my reasoning was that the person was “in need” and also they were “neighbors” and all of that. Well at the last minute the Physician’s wife (who apparently wears the pants in that family) decides to nix the deal. And I am left with nothing. Didn’t even call. Of course I did call him and he was super nice but the bottom line was “hey my wife doesn’t think I should do this so I’m not”.

    3. fredwilson

      remind me to ask you about this the next time we run into each other.i need to know.

      1. Hershberg

        Yup, will do.

  33. Eric Satz

    facts as presented suggest the VC’s actions were not illegal and therefore no legal recourse for the company. likely the only leverage and remedy is the threat of public disgrace and community outrage, thus this warning shot. someone stealing your idea is a universal start up risk, but entrepreneurs should not have to worry that those they are pitching are thieves in judges’ clothing.

    1. lksugarman

      The identities of all parties will come out, one way or another. Reminds me of Kozmo and Urbanfetch (Dotcom 1.0)

  34. george

    Shaddy way of doing business! I think it boils down to trust, and if people can’t trust you (VC) in business, I don’t think that you can last long (no credibility).Perhaps this experience is a blessing in disguise, you certainly wouldn’t want your dreams and hard sweat to be fastened to this type of partner.

  35. lksugarman

    Years ago, a customer of more than 4 years asked to change his form of payment, from automatic credit card payment to invoice. Since he was a trusted customer, a neighbor, and part of a strict religious community, I agreed. He ended up cheating me out out of about $12K, a lot for a small start-up business.When I told this story, mutual acquaintances said, “We thought you knew he’s an a$$h0le who cheats and threatens people.” So, how could I know if no one told me? Seems he’d threaten with lawsuits and more if anyone went public. Even after more than a decade, I have no problem warning people away from this jerk because he is still screwing people over. Just happened a few months ago. A friend discounted my warning and ended up regretting it.The moral of this story is that Ethics and Morals extend beyond the perpetrators in this most recent incident. The VC *and* his son are jerks. Who wants to do business with jerks? Who wants others to unwittingly do business with jerks? That VC’s money comes at too high of a price.I feel confident that with a minimum of effort someone will be able to look at the portfolios and figure out who are the parties are in this story. When they do, I hope I see the story on Medium…because I don’t want to make the mistake of having anything to do with that VC.As for Uber, I’d rather walk miles than ever use that service. I simply do not knowingly do business with a$$h0les.

    1. LE

      Years ago, a customer of more than 4 years asked to change his form of payment, from automatic credit card payment to invoice. Since he was a trusted customer, a neighbor, and part of a strict religious community, I agreed. He ended up cheating me out out of about $12K, a lot for a small start-up businessWelcome to the world of extending credit and the problems that come with doing so.I’ve operated in that world for quite some time. I sold a business once because I didn’t like dealing in that world. Very very very aggravating goes beyond the actual money by the way.By the way this type of thing doesn’t matter at all (however I recognize it was only a reason and not the reason you extended credit) “and part of a strict religious community”In this case the balance of power shifted and now can see that credit card companies provide value for the approx. 3% fee that they take (something nobody really talks about). Your situation is only one example. Money well earned in exchange for managing that risk.I feel confident that with a minimum of effort someone will be able to look at the portfolios and figure out who are the parties are in this story. When they do, I hope I see the story on Medium…because I don’t want to make the mistake of having anything to do with that VC.While I’m sure someone will jump on the opportunity to get attaboys and 15 minutes of internet fame from doing that might not be a good idea to go down that road (half cocked) without at least spending the time to investigate all the facts and attempting speak to all of the parties involved. Lot’s of crazy people in the world and you don’t know what they are capable of doing in return. (As you have pointed out since I’m noting you aren’t naming names here.)

    2. Kirsten Lambertsen

      +++++ !

  36. Rick

    “A few months later they saw a competitor emerge in the market with an identical business plan and a website that was eerily similar to their own.”.For years I’ve been watching others get funding for the same biz ideas I have. I get no funding. They fail at the same biz and then get more funding but I still get no funding…Good luck fixing these problems! I’ve even voiced my concern about these things but no one listens.

  37. Rick

    “Had they been able to outspend us by a 100x factor and kill us by underpricing, then it would be a different story. Had they outspent us and marketed so much the point that we looked like the copy and not the original, it would be a different story.”.That’s the real issue here. Lean, bootstrapping, shoe stringing, etc. are all great adrenaline drivers but in biz it’s money (funding) that usually makes or breaks you! That’s why I tell people get funding first!!! Not after you’ve put yourself in a compromised position!

  38. howardlindzon

    The question is when to go public. If you name names you could be further dragged into a defamation and libel claim. It’s so damn expensive and time consuming and all so negative. We are dealing with a founder and set of investors that have behaved in the worst ways and yet the court of public opinion is a last resort. As this boom gets longer in the tooth I expect to hear way more stories like this.

    1. John Minnihan

      This is complex because it’s abt people – their motivations, their character + their moral compasses.Entrepreneurs who are at or near the beginning of their careers will not generally, by definition, have the same access to + history with large groups of people in related businesses. For startup folks, that means VCs, lawyers, other founders, tech journalists + analysts.When shitty people do shitty things (they can’t help themselves), those closest to them see it in full technicolor. They experience first-hand + know exactly – with precision of detail – what happened. There’s no gray area like ‘well, perhaps he misunderstood…’ or ‘he didn’t intend for this info to leak to your competitor’ or one of my favs: ‘it’s just business’.The people in that network who know of the shitty behavior typically don’t ‘out’ the bad actor because of one thing: money.It sucks.But money – the opportunity cost of lost future deals, the time + cash you’ll tie up in litigation, the taint that comes from being considered untrustworthy (which itself is absurd – the whole ‘honor among thieves’ idea) – prevents otherwise honest, forthright people from doing what shd be a no-brainer here:Tell others abt the unethical person’s behavior.I suspect that’s why Fred isn’t talking, at least for now. Obv, I can’t speak for him.For me if I had this person’s name? I cld make a positive impact, i.e. informing my network + ensuring they avoid him + his firm, by communicating privately *without* taking on the burden of the other side of this: the hassle of dealing w/ it publicly.Anyone who is so ethically bankrupt as to do this sort of thing wouldn’t think twice abt litigating against those who bring attention to it. I don’t need shitheads like that in my life costing me time + money.

      1. LE

        I had a case once in business (among many cases) where someone did something shitty to me. The person’s last name was “Goldwall” was actually a friend of the family.I had formulated my opinion that what they did was shitty. However I wasn’t absolutely 100% certain so I decided that rather than spread bad things I would ask them if what happened was true and give them a chance to explain their side of the story.I didn’t want to go off half cocked. I wanted the facts.Surprisingly, they admitted what they had done.Then they followed up with “hey business is business” as if it didn’t even bother them at all. They fully “owned it”. No apologies. So now I knew where things stood I had the confession.Although I don’t agree Fred should name names as I’ve stated, if he was going to name names the first step would be to place a phone call to the accused to gather all of the facts and the reasons for the alleged behavior. As hard as that is to do, I’m sure many of us would want the courtesy of being able to give our side of the story prior to public disclosure to the internet witch hunt.

        1. John Minnihan

          yep, agreed.My context for sharing the name, if I obtain it, wld be that I had enough confirmation to consider the private warning to my network necessary.

  39. Stephen Bradley

    This kind of behavior threatens the entire VC model, which relies at its core on the hand-shake NDA. It’s simply not practical for VC to sign NDAs – but no entrepreneur would bring their business to one without at least a handshake understanding. One bad egg could do more than damage just its own reputation.

  40. Kirsten Lambertsen

    I’m really torn on the issue of to out or not to out.On the one hand, seems like ‘time wounds all heels.’ On the other, do we have a responsibility to fellow entrepreneurs to help them avoid similar bad experiences? By not outing are we part of the problem?I can see the dangers of, as Fred says happened with The Funded, bitter entrepreneurs taking out their resentment on innocent VC’s. But then again, how is that a worse situation than unethical VC’s operating unchecked?I really really admire the attitude of the startup founder as reflected in the email that Fred shared here in the comments. But what about all the other startups that are going to get burned by that VC in meantime?

    1. LE

      Not to be a broken record, but everybody is egging Fred on (except me it seems) simply because they have no downside to Fred pursuing that path, only, in most cases, entertainment value from hearing who “did this” with the exception of the small group of people that might actually want to get VC funding.

      1. Kirsten Lambertsen

        I haven’t egged him on to do anything. But I think the situation is worth considerable thought and debate.I also think that if the community (so to speak) were to start outing ‘bad’ VC’s that a lot of thought should go into how that should be done, in order to protect all involved.

  41. Steven Lowell

    Sadly, the smartest people in business still possess the human faults of a common opportunistic pick pocket.More sad, I think some cultures of business would find your scenario to be “fine” because the original business did not make anyone sign an NDA. Then pass it off as, “Hey. Your business mistakes. Not my ethics are the problem”.Even more sad…I couldn’t have said this without experiencing it.Thankfully, it’s a lesson in being “defensible” and knowing the world is filled with people not playing fair.I cant stand people who are so void of original thought, they survive by hijacking other businesses and bring nothing new to market.

  42. LE

    Let’s call it “the fishbowl”.One of the things that would certainly make someone like Fred more ethical is the simply fact that he has a blog such as with a very wide following, in addition to being well known in the business.Why? Because anyone can show up here at AVC at any point and bring to everyone’s attention something that he has done. And then a large number of people will then know about the situation and judge him accordingly. That alone means he has a great deal to lose from not being straight up with people and acting in absolutely the most responsible and ethical manner.I wonder if all the entrepreneurs that are pitching him recognize that added degree of “insurance” that the right thing will happen?

  43. hemang c subramanian

    The attitude of the founder of the subject company is awesome. I am sure, with this attitude, he will win. He uses this post and the VC’s son’s copying his idea as market validation. This is a very positive way to take this. Markets are known to be supremely “efficient” in the long run (and sometimes in the short run too). In my opinion – the justice delivered by the markets in the “long run” both outlasts and outpaces the justice delivered by either our modern judicial system or financial system.< Go!! Founder of the unnamed startup. Will cheer for you…>

  44. ZekeV

    The guy apparently didn’t read Zero to One.

  45. Jordan Elpern-Waxman

    Not sure if the reference was intentional, but my wife and I were just watching Matthew Broderick and Reese Witherspoon in Election. “Can anyone tell me the difference between ethics and morals?”

    1. Richard

      Think of Morals as the law and ethics as the regulations for carrying out the law

  46. Dasher

    Thanks Fred for sharing this. You may consider sharing this on Unfortunately this behavior is more common than it should be. Many VCs take meetings with entrepreneurs to ‘learn’ on behalf of their portfolio companies taking advantage of the fact that they don’t need to sign any NDAs and justifying to themselves this is their ‘value add’ to their portfolios companies. Having EIRs attend meetings in the guise of evaluating the business plans to figure out their next startups is another fairly common abuse of trust. Entrepreneurs can refuse to have EIRs attend the meetings, but they then run the risk of looking immature and insecure. There needs to be a better mechanism than let the best player win – this types of behavior needs to be exposed and sites such as provide a good role in this. Also it would help if honest VCs ;like you stop working with them in any way possible.I really feel for the startup that got ripped off.

  47. reece

    the longer i’m in the game, the more bad behavior i hear about… seems to be more and more of it these days, but could also just be a function of time and level within the industryno matter how much Fred/Albert/Brad, or Brad Feld, or others blog and reflect and are transparent… we’ll still have new entrants to the game — new founders, new investors — and with that is a whole roster of people who haven’t a clue…some are just ignorant. some are malicious. still up to the founders to do their homework and build meaningful relationships with the right people



      1. reece

        haha… hi Grim

        1. FAKE GRIMLOCK


          1. maya


  48. Sean Hull

    I worked for a small startup years ago, lets call them Ivy Inc. They had a product for monitoring enterprise installations. It ran on top of the-worlds-biggest-database-vendor.I finished the contract after about six months or so and was out of touch with folks there for a year or two. When I got back in touch with the director of operations, I left him a message. He called back and we reconnected.He asked if I had heard what happened to Ivy Inc? I said no. He went on to describe a scheme wereby the-worlds-biggest-database-vendor met with the three founders behind closed doors. They hatched a scheme to declare bankruptcy. Since the-worlds-biggest-database-vendor really only wanted the software & IP, they could get it at a fire sale price. Presumably there were delicious incentives for the founders. Meanwhile all the other employees who had equity were left out to dry.I shook my head, and offered my sympathy. All I could think of was, who would have ever thought the fine print could be that bad!For more cautionary tales of the big-bad world of capitalism & tech, I *HIGHLY* recommend the book:The Difference between god & Larry Ellison: *God doesn’t think he’s Larry Ellison…



  50. Andrew

    Just provide the name of the subject company and let people do their own investigation and act accordingly.

  51. Brandon Burns

    I think there’s a difference between being comfortable with failing, and being comfortable with being a failure.I hope as many good guys as possible fall into the former camp.

  52. Brandon Burns

    The Little Engine that Could was always my favorite children’s story. 🙂