[aclements18]

I see a lot of the comments the thinking in the founders logic. But remember there is also likely a good deal of pressure from investors who, depending on circumstances, have quite a bit of say on if they approve a deal or not. It is not uncommon for founders to want to sell and the vc want to hold out to produce a better return.

Why is that? Economics of a venture fund. Say a VC recognizes this is likely to be the biggest winner in their fund. If I run a $400 million dollar fund and I am trying to return 3 times that to my investors that means that I have to make my investors $1.2 billion. Considering my fund only owns 10% of the company, a sale for $3 billy ain’t gonna cut it.

Yes, this would be one of the 30 investments I made from this fund, but I am only expecting 3 of those to really knock it out the ballpark. I have to extract all my returns from those three.

I certainly don’t know that this is the case for Snapchat, but it has been the case for some. While this may sound like it’s holding founders money hostage, this is the game they (hopefully) knew they were getting into when they took that first dollar. Best of luck to them, they are still very much killing it.

[swalkergibson]

I really cannot fathom any investor that would not be absolutely ecstatic over a $3B exit for a product like this. Would any VCs care to comment on this specifically?

[aclements18]

Therin lies the problem. That is the fundamental conflict between the diversified vc and the concentrated entrepreneur. It is not a secret, in fact a lot of good VCs want entrepreneurs to have a very clear understanding of what the end goal is.

Mendelson touches on this in a post: http://www.jasonmendelson.com/wp/archives/2013/06/the-vc-bar...

[swalkergibson]

I think you are perhaps conflating returns on the fund as a whole vis-a-vis returns on an investment by investment basis. The goal of a VC, as I understand it, is to only invest in companies that can provide 10x returns, providing that one of those investments does return 10x, one returns 2x, three break-even, and five are outright failures. If a VC owns 10% of a company that exits for $3B, then the VC gets $300M, which returns 75% of the total fund. I very seriously doubt any VC firm would have stopped this transaction.