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

Nick Moran (0:00)

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Now on to the episode.

SPEAKER_2 (0:24)

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.

Nick Moran (0:39)

Welcome back to TFR. On today's special segment, we discuss major conflicts that guests have faced and how they resolve them. Here's a special segment called High Stakes Conflicts.

On today's special segment, we have Larry Cheng 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.

Larry Cheng (1:07)

Believe it or not, and 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. But still, maybe my box is wider. But there have, obviously, a type of conflict is if the founder is now 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 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. And in my mindset, in those types of dynamics, the founder is the tie that wins. 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.

Nick Moran (2:36)

On 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?

Glenn Solomon (2:47)

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 the round and we invited Snowflake who had been partnering with Streamlit to come in as a strategic investor in the round. Snowflake 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, we have 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 and 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 it was not a fun episode.