Overall, I have no problem with Marc's suggestions from a credibility/benefit POV, and I don't think he's making those comments to further any strategic position for himself.
"People in SV generally consider this unethical and abusive."
But this comment stood out to me. In my interpretation, this translates to Marc saying the civility and integrity of the benevolent overlords of Sili Valley are the true standard bearers of how to operate in the technology capital business. Further, anyone who doesn't follow that protocol is out of bounds.
Marc even calls out how the market will take care of this problem and that tech companies will need to do their own due diligence on investors. The implication: tech companies are obviously not smart enough to do that on their own, so I better let them know. Really...if any company taking on significant investment doesn't execute their own due diligence on their investors, well you get what you get.
Sure, but how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley, et alia? They have so many deal makers, partners and deals going that it can be nigh on impossible to get a grapple on how that affects the term sheets that you received. My gut tells me you should deal with companies that make most of their money from the finance market you are getting your capital from, are of a similar relative size in their market as you are to yours, and if possible have a similar head count (which is almost impossible as a start up); these are the rules I tend to make when hitching my horse to someone else's service wagon, be it finance, legal, comms etc. Obviously it is much harder to meet these goals as a small business.
> how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley...
Is this a suggestion that due diligence is a futile exercise?
If my company is taking hundreds of millions of dollars in investment, I will be damn sure proper due diligence is executed on all participants -- including Goldman, Stanley, etc. Because they are such high flyers, it should technically be easier to execute said due diligence.
Maybe you can tell us a story about how you've applied your incredibly due diligence powers against an investor who negotiates more deals in a month than you'll do in a lifetime and come out on top?
Because otherwise this sounds like the sort of fault-finding, monday-morning-quarterback activity where the apparent goal is for the speaker to feel superior.
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."
Hmm, sorry I cannot provide you any stories of my due diligence powers. I can only speak to the fact that I know my existing fiduciary duties don't make this an optional task.
I have a relative who works inside one of these large institutions and he has advised me multiple times: if we cannot verify what they're saying, you don't accept their investment -- it's as simple as that. The onus is on the investor to present themselves, and then the responsibility of accepting that investor in the group lies with management/ownership/board as designated by the corporation. Basically, you accept it or you don't.
A complex environment simply doesn't absolve me of my duties to my board.
"People in SV generally consider this unethical and abusive."
But this comment stood out to me. In my interpretation, this translates to Marc saying the civility and integrity of the benevolent overlords of Sili Valley are the true standard bearers of how to operate in the technology capital business. Further, anyone who doesn't follow that protocol is out of bounds.
Marc even calls out how the market will take care of this problem and that tech companies will need to do their own due diligence on investors. The implication: tech companies are obviously not smart enough to do that on their own, so I better let them know. Really...if any company taking on significant investment doesn't execute their own due diligence on their investors, well you get what you get.