Investor Stories 493: Founder CEO Removal, Acquisition Pressure, and Co-Founder Conflict — Lessons from Investors at Volition, Notable, and Fika (Cheng, Solomon, Chen)

0:00This episode is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners$150 just to take a demo. We've never had an offer quite like this. Claim your$150 before this offer is gone at our partner link, ramp.com slash partners slash TFR. Now on to the episode. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet. Welcome back to TFR. On today's special segment, we discuss major conflicts that guests have faced and how they resolve them.

0:47Here's a special segment called High Stakes Conflicts.

0:56on today's special segment we have Larry Chang of Volition Larry without revealing specifics talk about one of the highest stakes conflicts you've faced as a VC why the issue occurred and how it was resolved believe it or not and this is this is true most of my time and experience with my founders has been very positive the joy of this business for me has been working with founders who are trying to change the world And as an investor, I have a wide aperture, and I think you have to, for how founders want to do things. Because if you want them all to fit into a box, then you're almost taking away what's special about them.

1:30But still, maybe my box is wider, but there have, you know, obviously a type of conflict is if the founder is not working out. And I remember when I was younger, actually, and I was a board member with a partner on a company, and we had to replace the founder CEO at the time. I remember having to sit down with him and then having to sit down with the entire management team. And let me just say they weren't that happy about it. Those types of decisions can be hard. Sometimes there's more moderate disagreements on, you know, how much to invest and how your plan should look and so forth. I think that's a more normal course type of experience where you have to have a good working relationship and you have to be willing to compromise.

2:08And in my mindset and those types of dynamics, the founder is the tie that wins, you know. And so you want to back that. Sometimes there have been integrity issues along the way. I mean, I've been in this business for 25, 26 years, and those are the toughest ones, to be honest. I'd like to think everyone in this world has operated at least within a reasonable bound of ethics, and that's not always the case. And so there are different dynamics, but by and large, it's been really positive.

2:36On today's special segment, we have Glenn Solomon of Notable. Glenn, what is one of the highest stakes conflicts you've faced as a VC? Why did the issue occur and how was it resolved? So back in 2020, I led a Series A in a company called Streamlit. The terrific founders who were building great open source for data science teams that were very popular. Sequoia followed us leading a Series B at a very nice, I think, 4X markup within a year. And then a VC that I won't name tried to preempt a Series C within a year after that at about a 2X step up to the Sequoia Series B. We planned to go through with the round, and we invited Snowflake, who'd been partnering with Streamlit, to come in as a strategic investor in the round.

3:24Snowflake came back to the company within a week and said, actually, we want to acquire the business. And they offered a billion dollars. and said, don't do the financing. Like, we want to buy the company for a billion dollars. The founders, you know, we had a lot of conversations together on this, and they decided that they wanted to take the acquisition offer. The unnamed VC who had issued this term sheet somehow came to the ridiculous conclusion that the founders had to allow him to invest, even though they wanted to sell the company instead. And this person threatened the founders with a whole bunch of vacuous threats of legal action.

4:08And I had to intervene and to remind this misguided person that as VCs, we work for founders. And he was angering the founders. He risked ruining his reputation, his firm's reputation by doing this. And at that point, fortunately, he saw the light and his boss called the founder to apologize and they relented. But very poor form. Thankfully, they ultimately got to the right conclusion. But, yeah, it was not a fun episode.

4:46Are you still managing expenses with outdated apps and spreadsheets? If so, it's time for Ramp, the leading U.S. spend management platform covering corporate cards, travel, AP, and more. All built to save time and extend runway. We use Ramp at TFR and it's been a game changer. As our preferred partner, they're offering listeners$150 just to take a demo. No need to sign up. Head to ramp.com slash partners slash TFR to claim your$150 before the offer expires. Now back to the interview. On today's special segment, we have John Chen of FECA. John, talk about one of the highest stakes conflicts you've faced as a VC, why the issue occurred, and how it was resolved.

5:31Without going into specifics, I think the hardest thing is co-founder transitions in companies or co-founder conflicts. We had some that were successful and that we found resolution for and some that were messier. But ultimately, I think keeping it really objective and not taking sides too early is really, really important. And we actually do spend the time trying to interview all of the people around, you know, the conflict as well, which means actually talking to executives directly and just trying to get a broader sense of, you know, what the founding team and the co-founding team can do better together and try to really start from a place of facts.

6:11And so, yeah, so those are always the hardest. You know, the people problems are always, always the conflict inevitably emerges. You're working in a high stakes, high pressure environment. But yeah, objectivity and, and, you know, a steady hand is, is really the all, all we can, all we can really do as outsiders, you know, trying to help the company succeed.

6:37that will conclude this installment of investor stories if you're enjoying the program and would like to see it continue take a moment and leave a five-star review in itunes okay that will wrap things up for today until next time over prepare choose carefully and invest confidently thanks for joining me.