Why VCs Will Block Good Exits

This is a continuation of my previous posts on exits. This is a story about one of the little known facts about what happens when traditional venture capitalists invest in your company.

A friend of mine founded a tech startup about five years ago. His investors were several prominent VCs. The company had an opportunity to be acquired by a much bigger company at a price that would have produced a return for the VCs of about 300% (i.e. 3x).

The management team was eager to sell because much bigger players were moving into their market and they had concluded that it would be much harder to win new contracts in the future. They also believed that because the big players were getting excited about their space, they would probably get the best valuation now.

But the VCs were Blocking the Sale

My friend couldn’t understand why his board was blocking the sale. He asked me why the VCs on his board couldn’t see the situation they were in and appreciate the opportunity for a great exit that was right in front of them.

I explained that it wasn’t the VCs who were missing something; it was my founder friend who didn’t get it.

The full post explains what my friend didn’t understand when he selected venture capital investors to fund his company.