Tue, 2 June 2020
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
A venture fund brings a fiduciary responsibility to those raising the funds from limited partners.
A fiduciary means the VC must act in the best interest of the investors.
VCs who sit on the boards of their portfolio companies also have a fiduciary duty to that company.
There are times when the two fiduciaries come into conflict.
It’s best to have your duties to the investors stated in the PPM such as liquidation preferences, preferred shareholder treatment, etc.
The VC must appear to be following a fair treatment of both parties and may need to engage in negotiations to resolve conflicts.
VCs often use incentives such as offering additional equity to either the startup or the fund’s investors to resolve that conflict.
For example, the investors may want to see an exit sooner rather than later. The startup founders want to wait to potentially gain a bigger exit.
The VC can offer additional equity to the founders if they agree to an exit now.
Direct download: EG_Mar_2020_Startup_Funding_Espresso_--_Fiduciaries.mp3
Category: -- posted at: 7:47am CDT