The term "It's Not in My Interest to Screw You" is one I find myself commonly uttering in regards to entrepreneurs. The thought process behind this is that my reputation as a VC in the community is far more important than trying to "win" in regards to one specific deal. Fred used this response when commenting on his post Some Thoughts on Convertible Debt. Right now there is a discussion going on in the VC blogs about doing straight equity deals verses issuing convertible debt. That's not the point of this post though.
I'm simply trying to clarify the comment and the thoughts behind VC's not necessarily screwing entrepreneurs. Those VC's who are very transparent in what they do (Fred, Mark, Brad) all know that their reputation is far more important than taking advantage of individual entrepreneurs. I feel comfortable saying they don't. Unfortunately, it's a matter of semantics. Whenever an entrepreneur feels slighted in a VC transaction, it ultimately turns into "getting screwed by the VC." Fred, Brad and Mark as well as many other VC's truly want to help the entrepreneur be successful. I like to consider myself to also be one of them (although the guys mentioned have far greater reaching reputations). Unfortunately, at times, things go sour. This is when it becomes really hard to make it clear to an entrepreneur that you are not trying to "screw" them. Yet, we don't live in a perfect world. People DO get screwed in deals and things don't always go as planned. Terms like "drag-along", "liquidation preference" and "anti-dilution" tend to be triggers for the thought of "I'm getting screwed!" This is where preparation comes into play and an understanding of key venture terms.
The best way to avoid getting screwed is to understand what you are getting into. Sorry for repeating the obvious but I'm constantly reminded of this. In the past couple of years so many blog posts have been written making the majority of terms in VC deals completely clear. As an entrepreneur it is imperative to inform yourself as best you can when going into a negotiation regarding funding. You should do your best to have a lawyer or at least an advisor who understands the process and who can consult you on what to accept and more importantly what not to accept. Finally, you should have a gut feel that the VC (or angel) whom you are considering is someone you can and want to work with.
