Investors and Entrepreneurs aren’t Always Aligned

Last week I was talking to an entrepreneur that was lamenting how they weren’t aligned with one of their investors, and it was causing serious challenges. It isn’t that they didn’t have a good working relationship — they have a decent relationship — it’s that the nuances of their equity, compensation, timelines, etc don’t match up.

Here are a few items that can result in misalignment:

• Vesting – When raising money, investors often require entrepreneurs to have some or all of their shares vest over a period of time, usually four years. This becomes a challenge if an acquirer comes forward to buy the business before vesting is done. Sometimes the acquirer wants the vesting to continue, or even extended, as part of the acquisition (accelerated vesting on change of control is something an entrepreneur can negotiate for at time of investment).
• Timeline – Venture funds usually have an investing period of five years and a harvesting period of 2 – 5 years, such that a startup might be doing really well, but it’s the end of the fund’s life, and the investor wants to sell but the entrepreneur doesn’t.
• Follow on Money – If a startup has a down round, or needs a bridge round on unfavorable terms, there’s a good chance the entrepreneurs get crammed down, resulting in a more difficult situation going forward.

Even with the best intentions, investors and entrepreneurs aren’t always aligned. It’s important to keep communicating and pushing forward.

What else? What are some other examples where investors and entrepreneurs aren’t aligned?