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What are the implications of approaching a venture capitalist firm that is affiliated with a potential competitor of the product for which you are seeking venture capital?

Jeff Andrews's Profile


Topic Expert
Michael Bateman
Title: Principal
Company: The Bateman Company
(Principal, The Bateman Company) |

Typically, Venture Capitalists will tell you that their ethics prevent them from sharing your information with a competitor and that they are able to maintain a firewall in such cases. However, keep in mind that people in all walks of life have different ethics. I once had to admonish a VC that handed me a competitors business plan. While I'd say that this behavior is extremely rare, once a VC has read your material it will be almost impossible for a VC to completely erase everything they learned, so to some extent some of what they learned may inadvertently bleed over. Having said that, a lot depends on the nature of your potential competitor and how damaging knowledge of your company falling into their hands might be. On the other hand, if such a VC has learned a lot about your space and wants to invest in your company, such a VC might prove an excellent partner. If I like and reasonably trust a VC, I tend to favor risk while employing common sense and caution. It is hard enough to raise money without making it even harder by being too circumspect.

Scott Kleinberg
Title: CFO
Company: Undisclosed
(CFO, Undisclosed) |

My view is that VCs tend to limit their investments in a specific technology space. If they've already invested in a competitor/leader, its fairly tough to get them to invest in you. I do think they're happy to see what their portfolio companies are facing however, and it may not be in your interest to make those disclosures. I don't believe they act unethically, but as pointed out above, residuals are hard to erase.

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

I agree with Mike. My experience is that a VC is reluctant to put themelves in a position of potential conflict of interest, or alleged misue of information and will avoid you to keep this risk at bay.
Also, if A VC is doing badly with a comparative portfolio company they will have learned from the experience to steer clear of the space. If they are doing well, they dont need more investment in the same space.



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