Sunday brings the NYTimes and the Sunday Times brings The Ethicist, a column currently helmed by culture writer Chuck Klosterman. While the questions debated are widely varying in subject matter, I don’t recall any addressing venture capital. Maybe the Secret app is our version of The Ethicist but rather than publishing anonymously, let me post here: What assumptions should entrepreneurs make with regards to VCs and confidential information?
It’s a question which on the surface seems simple but given the amount of information investors receive and the different pathways which bring it to them, I’m not sure the expectations are universal or absolute. Here’s how I’ve operated at Homebrew. Curious whether folks behave differently or have feedback for me.
If it’s information that has come from a founder as part of a deal pitch, it’s ALWAYS held in confidence. And if I believe we might be conflicted, I tell the founder at the earliest moment possible, before any other information is shared (interestingly, the two times we were potentially conflicted, the founders (a) thanked us for being so upfront and (b) still wanted to share more info with me so we could determine whether there was a conflict). My commitment to this principle holds true regardless of whether I’ve approached the company proactively or it’s a cold email from the founder. Just because they provided me confidential info prior to my request, I still believe every founder should assume my inbox is a lockbox. If you put something there as part of pitching your company, I’m going to respect that trust, even if the information would assist one of my portfolio companies. I can think of one asterisk to my claim here: if I’m made aware of a company via a pitch, I might share any publicly available info (such as a placeholder URL or Twitter account) with someone but not with any additional context drawn from the confidential info. Here’s an example:
Company ABC.com sends me a deck unprompted describing their future vision for 3D printing. I had not heard of ABC.com prior but upon going to their website see that’s it’s a placeholder with tagline “inventing the future of 3D printing.” In this case, if there’s a company in our portfolio or an entrepreneur I know which might be interested in what ABC.com is doing (collaboratively or competitively), I may pass along the URL and just say “keep an eye on these guys.” That’s it. If the recipient wants to know more, I’ll decline but if they want to introduce themselves to ABC.com founder, I’d tell them to send me an intro email and I’d pass along to the founder, without necessarily revealing who it is, etc. To me that seems fair.
What if I receive confidential information indirectly, for example, another VC passing along a deck or a friend telling me about something happening at a company, or to a person, etc. To me this is a more grey area. I’m sure there are some people who would suggest that if the subject themselves didn’t want you to have the information you should treat it as confidential by extension. I understand that opinion and think it’s admirable but can’t honestly say I fully live by it. At the same time, I do accept some responsibility that the fact this information has reached me is (a) not at the request of the subject and (b) using it inappropriately might cause problems for the subject. Since my goal is to be karma-positive (or at least kindness-positive), I want to balance self-interest with impact.
Great, great but what does that actually mean for how I use this information (if at all)? Usually in one of two ways. If it’s a case of wanting to reach out to the subject directly based on what I’ve learned, I’ll ask the person who gave me the info whether I can do so and to what degree I can suggest that I’m informed. There’s the “I know so let’s talk.” There’s the “hey thinking of you and wondering whether it’s a good time to talk.” And sometimes I just need to sit on it out of respect for the situation.
The other way I’ll use it is in a watered down version, likely not forwarding on the confidential deck or specific details but perhaps reaching out to the impacted Homebrew company and say something like, “hey, I hear BigCo ABC is building a product similar to yours. Have you heard anything like this? If not, might be worth digging a bit.” Would I ever pass along the full info verbatim? I don’t want to say a definite “no” but it’s not my default behavior.
Overall in all of these situations I think it’s essential to optimize for two goals: (A) that people can approach me proactively and in an unguarded fashion because I’m going to protect their interests and (B) even if I’ve invested in your company, I’m going to balance your self-interest with trying to keep the tech community a positive, safe space.
What do you think? Are there other questions involving VCs that you want to ask about? I’ll answer as best I can with the caveat that I’m early in my career so haven’t encountered the range of scenarios that a 20 year investor may have.