Reviewing Competitive Deals

Each year a typical venture capital firm reviews thousands of business plans and meets with hundreds of companies.  Inevitably this leads to situations where we see teams with competitive strategies, including some with a vision that may overlap with the strategy of existing portfolio companies.

I have been in this position even more frequently as of late given the increasing volume of startup activity.  Below is a protocol I learned from others that helps avoid conflict in this situation:

• If a company I am introduced to is clearly competitive with an existing portfolio company or one that we are expecting to invest in, I decline meeting and explain why.
• If I don’t have extensive details on a company and discover a conflict as they start to pitch, I interrupt the presentation, disclose the potential conflict and ask if they wish to stop.
• If the team is open to continue, which is often the case, I still make them aware that before moving forward we would need to make sure our existing portfolio company is comfortable with us doing so, no matter how compelling the opportunity.

As many investors have blogged about in the past, it is not practically possible to operate as a VC and sign NDAs.  However, I think maintaining the protocol above helps abate the concerns of entrepreneurs who are understandably concerned about sharing their vision broadly.