Abstracting the blogosphere

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Where does power lie

Posted by suntzu on September 8, 2006

In his blog “Where does power lies“, Matt McCall talks about the misconception of power control between VCs and enterpreneurs. Most entrepreneurs focus on maintaining 51% or more of the voting stock to maintain power control. On the contrary, the power control rests on the need for capital. Even if the VC’s own 5% of the company, this need for capital is the source of their leverage. Entrepreneurs that can get their companies to break even, or that have alternative funding sources, have a much stronger control.

He also discussed about what diffrentiates a good VC from the crowd. Good VC’s will give an entrepreneur significant room to operate, give advice based on past experience and brings resources when required. They layout core principles which are important to them as well as define, with the company, critical milestones. Control is not determined by legal clauses or purse strings but by mutual, earned respect between them and the CEO.

Author reiterates that it is a mistake for VCs to enforce unilateral control on a business since it poisons the relationship going forward. Read the full post here

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