How to find investors with integrity

Who you take money from matters a lot.

Author

Clint Betts
August 20, 2024

❝

“In principle you could take a huge VC investment, put it in treasury bills, and continue to operate frugally. You just try it.”

― Paul Graham

In today’s email:

  • Dear Clint: Who should I raise money from?

  • Must Read: Food industry responds to Kamala

  • Upcoming Event: How you can get the most out of AI

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QUESTION
Dear Clint,

As the founder of a startup with some momentum, I’m currently in discussions with several venture capital firms about potential funding.

I have some concerns about the negative traits I’ve heard through my network about VCs in general. These traits include adding clauses in agreements that ultimately give them more ownership, micromanaging when it comes to hiring, taking forever to make decisions, and interfering with the direction of the company.

How can I navigate these potential pitfalls and ensure that I choose a VC partner who will support my company’s growth without compromising its vision?

Sincerely,

Cautious Founder

ANSWER
Dear Cautious Founder,

Ah, the sweet smell of venture capital — like a new car’s leather seats, enticing until you sit on them after your car’s been parked for hours in 110-degree heat.

You’re right to be cautious; the VC world is full of big promises and even bigger strings attached. Indulge me, if you will, with another parable: you’re getting into bed with someone who insists on adjusting the thermostat every five minutes and then, just for kicks, decides to move your furniture around while you’re asleep.

You don’t want that. Instead, you should look for the opposite of that. It’s crucial to carefully consider the source when deciding to accept money. Like all human beings, there are good VCs and bad VCs. Make sure you conduct your own “due diligence” by speaking with companies they’ve already invested in and understanding their reputation within the community.

My advice: don’t raise money.

At least for as long as you can; the more you can build on your own the more control you’ll have over your destiny. If end up having to raise money, well, my advice would be to choose your VC partner like you’d choose a roommate. Look for someone who won’t raid your sock drawer or eat all your cereal.

Of course, I’m not saying anything ground-breaking here. Paul Graham's 2005 essay on the subject still rings true.

Yours,

Clint Betts

Contact Clint

Phone: (385) 217-0670

MUST READ

WSJ: Food industry pushes back against Kamala Harris’s “price gouging” plan

Vice President Kamala Harris has proposed a federal ban on food price gouging, attributing rising grocery prices to corporate greed. This has stirred pushback from the food industry.

Industry executives, speaking to the Wall Street Journal, argue that higher prices are necessary to cover increased costs. Meanwhile, critics, including some Democrats, accuse companies of exploiting consumers.

Industry Response

Food industry executives argue that rising costs in labor, supply chains, and raw materials like cocoa justify the price increases.

  • “But to automatically just say there’s got to be something nefarious, I think to us that is oversimplified.” — Andy Harig, FMI

  • “We make no excuses or apologies for trying to protect our margins.” — Steve Cahillane, Kellanova CEO

Political Context

Harris’s stance is partially a response to attacks from Donald Trump, who has blamed her for contributing to inflation during her tenure in the Biden administration.

Republicans argue that additional COVID-19 relief funding has fueled inflation, with Trump saying, “People are voting with their stomachs.”

Consumer Impact

Americans are spending more on food than they have in decades, with grocery prices up by about 27% since 2019.

Some food companies, like Chobani, have acknowledged that prices may be too high.

  • “This is irresponsible… People who depend on food are paying the price.” — Hamdi Ulukaya, Chobani CEO.

Industry’s Defense and Strategy

The industry insists that profit margins are necessary to fund new product development and to handle increased costs permanently embedded in the supply chain.

Companies like Walmart are investing in store brands and lowering prices to address consumer concerns.

  • “We are wired to help bring prices down, and we’ll continue working.” — Doug McMillon, Walmart CEO.

Regulatory Challenges

There is no universal definition of price gouging, making it difficult to enforce Harris’s proposed regulations.

Some Democrats and consumer advocates blame industry consolidation for rising prices, while food companies maintain that reducing product size rather than prices is a way to offer consumers affordable options.

Harris has some explaining to do Eric Levitz, Vox

Anxiety and American politics Adorney, Johnson & Laughton, City Journal

Inflation & high prices Alicia H. Munnell, Center for Retirement Research

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