Peter Rip wrote a very good analysis about aligning risk profiles between investors. We have now had two experiences with this. I both cases, the entrepreneur had an offer for acquisition, and also had an offer from at least one investor for a buyout. In both cases, the entrepreneur opted for the acquisition. And, in both cases, it’s not at all clear to me that we (as investors) should have tried to balance their decision more by offering a bigger buyout – that changes our risk, too. There many not be a good solution to this, which then gets back to the question of the VC Squeeze.
At least one venture capitalist, Thomas A. Shields, a partner at the Woodside Fund in Redwood Shores, Calif., sees merit in this argument. To Mr. Shields, a company founder who is “stock rich but cash poor” just might be overly conservative in his or her business decisions for fear of losing everything.
“If you can give these guys a little bit of liquidity so they’re comfortable taking more risk, but not so much that they’re not hungry anymore, then it can be a very good thing,” Mr. Shields said. “You let them take a little bit off the table so they’re playing with house money.”