First you give but suddenly you take away.
I have been investing now for over a decade. I have learned an incredible amount and I am still learning. Each company has a different life, the documents are key and the price is extremely important. The other important factor, that might be the most important factor, is behaving as an investor.
Whether we want to believe it, our reputations as investors, all proceeds us. It doesn’t take much diligence to find out about an investor. The lion share of investors in the start-up world are big ventures funds, micro-venture funds, and angel investors like myself. Each of us involves ourselves differently, have a different thesis and are interested in different categories.
Recently I have seen some behavior that is reprehensible mostly from micro-VC’s. I spoke to someone else about this recently, who sees more deals than most anyone I know, and he is seeing the same thing in almost 25% of the investments that come across his table. Micro-VC’s committing capital to a company, that is documented (not just a handshake or a conversation) and sometimes even signed legal documents, and then about a week later they change their mind and decide they won’t commit to anything.
This happened to a deal I am invested in. The micro-VC signed the legal documents for $1.5m and then decided that they changed their minds and could possibly (and that was a big not sure) come with $250K. That behavior has fucked the company because there really wasn’t anyone else at the table to cover that amount. The VC who was already invested came in, did a down round, got everyone to pony up more cash, but the company is still reeling from that hole of cash that was supposed to be a hefty infusion. They are still short. This is when the value of a major institutional investor really makes a difference.
I have heard of another where $250K was committed, then it went to $1m and then a week later went to zero but they would consider $100K. Can you imagine how the founders felt in both of these deals? There are highs and lows in building a company but this is a whole other ball game.
I have not publicly outed the micro-VC who screwed the company I am invested in although I have certainly mentioned their name to others as I have heard about other bad behavior from that group. I believe what goes around, comes around. This type of behavior needs to be called out, it is not the type of reputation that should be tolerated in the start-up community.