Mon. Jan 17th, 2022

Startup founders deserve to know who their investors’ investors are

With capital in abundance for startups, the balance of power between investors and founders has tilted towards the latter in recent years. This manifests itself in a variety of ways throughout a startup’s lifecycle, from more favorable early stage terms to more founder-friendly public listing terms.

However, there is one area that remains untouched: the anonymity of a fund’s limited partners (LPs). Rarely, if ever, do VCs fully disclose who their LPs are, even to the founders they’ve invested in.

Both LPs and VCs have reasons for wanting to keep their involvement confidential. But if these reasons aren’t solid enough, my prediction is that this will change.

The main driver, in my opinion, will be the pressure of the founders.

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With increased competition for the best deals, VCs increasingly have to sell themselves to founders they hope to support. In this context, the old model in which founders have to undergo a thorough due diligence and not ask any questions seems outdated. Now, when entrepreneurs get a chance to start poking around, there’s a good chance they’ll be asking about LPs.

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