Where the best deals are, conflicts of interest come along
An investor with no conflicts is often an investor with no network. The useful question is how the conflicts are handled.
No conflict, no interest.
The line is reported rather than recorded. John Doerr, a partner at Kleiner Perkins Caufield & Byers since 1980, is said to have used it to describe how his firm worked: partners sat on many boards at once, portfolio companies did business with each other, and the same people turned up at every table. Critics called it a web of conflicts. Doerr’s four words turn the charge around. If an opportunity came with no entanglements at all, it was probably not worth much.
There is a real logic to this. In venture capital, the most valuable thing an investor brings is access: to customers, to hires, to other investors. Access comes from relationships, and relationships create conflicts. A partner who sits on the board of a browser company and a search company knows things about both. Kleiner’s practice of introducing its companies to each other, which the firm compared to the Japanese keiretsu, helped companies such as Netscape and Amazon find partners early. Someone scrupulously free of such ties would have had little to introduce.
The phrase is less comfortable outside that world. Between 2000 and 2003, regulators in the United States found that analysts at large banks had praised stocks in public while their firms earned fees from the same companies, and the banks paid about $1.4 billion to settle. Nobody in that case would defend the conflicts as a sign of interest. The difference is that an analyst’s job is to give neutral advice. A venture investor is openly on one side.
For a founder, the line is a reminder to ask plain questions before taking a check. Does the firm hold a competitor, or a company that might become one? Who on its team sits on boards in the same market? What happens to information shared in a board meeting? Good investors answer these readily, and many have firm rules about not backing direct competitors.
The honest reading is that conflicts are a cost of being well connected. Disclosing and managing them is the job; pretending they do not exist is how they cause harm.