Does reputation and character govern behavior in Silicon Valley more than formal legal rights, and are public disputes among investors/founders good for the ecosystem?

Chris Dixon · Mar 27, 2024

Winning investments at large VC firms ultimately comes down to what founders say about you in references, which is a good thing because it keeps investors honest and cannot be gamed

Founder-to-founder reference calls get candid answers because the person asking is about to devote ten years of their life to the choice

Scope: applies to large VC firms / competitive deals

13:12 20VC: a16z's Chris Dixon on Who Will Win the Next Generation of Venture, The Two Ways to Make Great Venture Investments and Find the Best Entrepreneurs & Why AI Will Strengthen the Position of the Incumbents Moving Forward

Delian Asparouhov · Jul 29, 2024

Silicon Valley does not operate purely according to legal rights; character and reputation govern outcomes as much as contracts

Ongoing public disputes among investors and founders show reputational dynamics driving behavior rather than legal entitlement

38:11 20VC: Twitter's Most Controversial VC Delian Asparouhov on Inside the Walls of Founders Fund: What the World Does Not See | Why Western Europe Will Be Like the Third World | Why SaaS as an Industry Might Be Dead

Nick Chirls · Sep 6, 2024

It is not a problem; what ultimately matters is backing the right founders.

The outcome ultimately turns on founder selection rather than governance structure.

Scope: concedes you get a lot of bad behaviour

23:30 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Nick Chirls · Sep 6, 2024

If a founder is going to do the wrong thing, legal agreements won't protect you — the real error was the investment decision to back that person in the first place

Almost every acquisition involves a negotiation over how much goes to founder retention versus the cap table, so investors are ultimately relying on the founder to do the right thing

Scope: exception for true at-scale companies; reliance runs both ways

26:39 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Nick Chirls · Sep 6, 2024

Where there is real trust and truthful conversation between a founder and an early investor, the founder usually does not end up screwing the investor

Scope: 'more often than not', not always

29:30 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Delian Asparouhov · Jul 29, 2024

Public VC feuds are net good for the ecosystem because they put investors' characters on display and let founders self-select into who they work with

Founders benefit from understanding how this stuff actually happens behind the scenes; neither side of such fights comes off unscathed, but the transparency lets founders opt in or out

Scope: value is for founders' information, not for VCs scoring points publicly

38:38 20VC: Twitter's Most Controversial VC Delian Asparouhov on Inside the Walls of Founders Fund: What the World Does Not See | Why Western Europe Will Be Like the Third World | Why SaaS as an Industry Might Be Dead

Delian Asparouhov · Jul 29, 2024

Investors publicly fighting back and airing how they really think about one another is good, including when Paul Graham hits back at him

Founders have to choose who they work with, so more transparency about the character and preferences of the people they'll be working with serves them

69:52 20VC: Twitter's Most Controversial VC Delian Asparouhov on Inside the Walls of Founders Fund: What the World Does Not See | Why Western Europe Will Be Like the Third World | Why SaaS as an Industry Might Be Dead

Harry Stebbings · Sep 6, 2024

Good-hearted founders can still be swayed into screwing investors by pressure from people they admire, and these nuanced situations are exactly why legal protections exist

You cannot account in advance for the situations where an admired acquirer or CEO pressures a founder; that's why people sign prenups

27:21 Situational pressure can turn good founders so legal protections still matter