Venture Fratricide (continued)

I have blogged about this Venture Fratricide concept on a number of occasions.

Venture Fratricide is when other VC firms back companies that compete with an existing venture-backed company.

Venture Fratricide is very common and it is one of the most disturbing aspects of the venture business to me.

In my first post on this subject back in March of last year, Giordano commented:

Uhm... forgive me for asking, but isn't that called "free market"?

Right you are Giordano.  Capitalism is about darwinian survival.  And maybe it is a good thing that venture capitalists are free to fund whatever strikes their fancy.

Entrepreneurs are also guilty of entrepreneurial fratricide.  When they see one of their brethren doing something interesting, they jump in and try to do it better.

So possibly all this competitive frenzy is a good thing.

But what do you do when you have invested in a company which has worked for years to attain a position of leadership in a market which is now developing nicely and you see your friends in the business thinking about funding some new entrants?

Do you sit back quietly and watch them do it?

Or do you actively try to convince them that they are making a mistake?

Or would that just backfire and convince them even more to make the investment?

It's a tricky issue.

I used to take the former approach which was to sit back quietly.

But I am not going to do that anymore.

If other firms are doing their diligence on a competitor to one of our companies, I want to be called by those firms.  In return, I am going to attempt to talk to the VCs that are behind any competitors to companies that we consider investing in.  I think that is the right way to handle this issue.

I also think it is smart to call or visit the CEOs and/or founders of the companies that a potential investment will compete with.  That's the best way to assess the competitive dynamic.  You can learn a lot that way.

This all might sound like collusion to entrepreneurs, but I think its the right way for the VCs to behave.  And it might just reduce some of the crazy overfunding of market sectors that has plagued the venture business in recent years.

UPDATE:  This post caused a lot of controversy and comments.  At some level, I like that because it means it struck a chord.  But after reviewing all the comments, its clear that I did not communicate my point very well.  I am not advocating "club investing" or even "collusion" of any sort.  My point was simply that the venture business is full of investors who don't do enough diligence on potential investments, who don't spend enough time assessing the potential size of a particular market, and who don't take the time to understand the extent of the existing competitive dynamic with any degree of care, and therefore pump money into a "hot" market segment until it is grossly overfunded. I think that's a bad thing to do and I am simply advocating more communication and diligence in the VC community to avoid that in the future.

Comments

[Joe White]

James Chen, with all due respect, you are missing the point. "Collegiality" is a code word for collusion, at least that's how the entrepreneurs on this blog see it (if I represent them all for a moment).

[Martino Mingione]

I maybe in this conversation too late, but I did not read "collusion." My first thought is "rationalization." Assuming that no VC is stealing information or doing anything illegal, I don't see why you had your original policy of silence.

Scenario #1: Entre#12 really is doing due dilligence. The market potential should be smaller than for Entre#1, market timing worse, and hence the risk much higher. Talking to him in terms of him/her missing the first opportunity might mean that they 'blink' and don't compete.

Scenario #2: Entre#1 has so misjudged their market, mismanaged their development, or alienated the potential customers, that VC#1 better learn that.

Scenario #3: The market is so vast, you have to expect 2 or 3 rivals.

In none of these scenarios do I see a reason for not getting involved immediately in dialog.

[sandy]

What a dumb thing to telegraph to the World.

Good Luck on the Deal Flow Fred!

[sagittario]

sagittario - scarica - scaricare - scherzi - scherzo - scorpione - screensaver - sfondi - sfondo - skin - softwares - spybot - spyware - storia - svcd - tablatura - tablature - tabulati - tarocchi - tarocco - tatuaggi - tatuaggio - toro - torte - toyota - tribali - trucchi - tuning - tunning - tutorial - tutoriali - vcd - virus - volkswagen - wallpapers - winamp - windows-media-player - winrar - winzip - zodiaco - zonealarm -

[Astuce]

edonkey kazaa messenger 7.5 ad aware antivirus firewall horoscope chinois emule mp3 gratuit kazaa telecharger jeux a telecharger emule telecharger antivirus gratuit blague humour logiciel antivirus blague blonde logiciel a telecharger telecharger divx telecharger divx player telecharger emule telecharger emoticone gratuit telecharger kazaa gratuitement telecharger logiciel gratuit telecharger clone cd tarot telecharger kazaa lite telecharger fr telecharger emoticone telecharger emule gratuit telecharger kazaa en francais telecharger e mule gratuit telecharger antivirus gratuit telecharger divx gratuit telecharger codec divx telecharger acrobat telecharger divx gratuitement telecharger chanson skype telecharger logiciel divx telecharger kazaa gratuit telecharger antivirus telecharger e mule gratuitement tablature guitare recette de cuisine telecharger emule gratuitement telecharger msn plus telecharger nero gratuitement telecharger yahoo messenger telecharger messenger telecharger msn messenger 8.0 telecharger msn mesenger winmx telecharger messenger 7.5 zodiaque telecharger messenger 7.5 telecharger nero telecharger music mp3 telecharger nero gratuit telecharger shareaza telecharger shareaza gratuitement telecharger msn messenger gratuit telecharger msn 7.5 telecharger winzip telecharger msn messenger gratuitement telecharger msn messager telecharger norton antivirus 2005 telecharger msn 7.5 francais telecharger skype telecharger musique gratuite telecharger norton antivirus telecharger shareaza gratuit telecharger msn gratuitement telecharger winzip gratuit zone alarm telecharger winamp telecharger nero 6 telecharger mp3 telecharger msn messenger 7.5 msn messenger 7.5 telecharger nero burning rom telechargement gratuit de film musique mp3 telechargement logiciel nero 6 norton antivirus 2005 telechargement musique de film telecharger album musique mp3 telecharger telechargement gratuit film x nero norton 2005 telecharger acrobat nero burning telechargement gratuit de film porno msn 7.5 telecharger telecharger acrobat reader msn telecharger msn messenger 7.5 telechargement logiciel gratuit horoscope gemeau horoscope cancer horoscope capricorne google earth telecharger horoscope poisson horoscope fond ecran voiture horoscope chinois ford horoscope balance france musique horoscope lion horoscope du jour horoscope gratuit horoscope sagittaire horoscope belier google telecharger

[telecharger shareaza gratuitement]

skypetarottelecharger emoticonetelecharger frtelecharger emule telecharger acrobattelecharger chansontablature guitare telecharger antivirus telecharger divxgratuittelecharger kazaa litetelecharger divx gratuitement -telecharger emule gratuitementtelecharger antivirus gratuit telecharger codec divx telecharger moticone gratuit telecharger kazaa gratuitementtelecharger kazaa gratuittelecharger divx player telecharger logiciel divx telecharger clone cdtelecharger la nouvelle version de emule gratuitement telecharger emule gratuitement version 46telecharger emule gratuitement et sans telephoner emule plus telecharger gratuitement telecharger gratuitement le logiciel emule telecharger film avec emule gratuitement telecharger emule gratuitement en francais telecharger ratuitement de la musique sur emule telecharger emule gratuitement et facilementtelecharger and emule and gratuitement recette de cuisine emule telecharger gratuitement musique telecharger gratuitement emule plus telecharger logiciel emule gratuitement telecharger and gratuitement and emule and sans and telephoner telecharger gratuitement film avec emule telecharger emule plus gratuitementemule telecharger gratuitement logiciel emule telecharger gratuitementtelecharger emule en francais gratuitement logiciel et emule telecharger gratuitement film telecharger gratuitement emule telecharger kazaa en francais telecharger e mule gratuitement telecharger e mule gratuittelecharger emule 0.45 gratuitement telecharger version 0.43b emule gratuitement telecharger gratuitement emule v0.45b
telecharger gratuitement emule 0.46b telecharger emule 0.46c gratuitement telecharger emule 0.45 b gratuitement emule 0.45 telecharger gratuitement telecharger gratuitement emule v0.46a

[telecharger shareaza gratuitement]

skypetarottelecharger emoticonetelecharger frtelecharger emule telecharger acrobattelecharger chansontablature guitare telecharger antivirus telecharger divxgratuittelecharger kazaa litetelecharger divx gratuitement -telecharger emule gratuitementtelecharger antivirus gratuit telecharger codec divx telecharger moticone gratuit telecharger kazaa gratuitementtelecharger kazaa gratuittelecharger divx player telecharger logiciel divx telecharger clone cdtelecharger la nouvelle version de emule gratuitement telecharger emule gratuitement version 46telecharger emule gratuitement et sans telephoner emule plus telecharger gratuitement telecharger gratuitement le logiciel emule telecharger film avec emule gratuitement telecharger emule gratuitement en francais telecharger ratuitement de la musique sur emule telecharger emule gratuitement et facilementtelecharger and emule and gratuitement recette de cuisine emule telecharger gratuitement musique telecharger gratuitement emule plus telecharger logiciel emule gratuitement telecharger and gratuitement and emule and sans and telephoner telecharger gratuitement film avec emule telecharger emule plus gratuitementemule telecharger gratuitement logiciel emule telecharger gratuitementtelecharger emule en francais gratuitement logiciel et emule telecharger gratuitement film telecharger gratuitement emule telecharger kazaa en francais telecharger e mule gratuitement telecharger e mule gratuittelecharger emule 0.45 gratuitement telecharger version 0.43b emule gratuitement telecharger gratuitement emule v0.45b
telecharger gratuitement emule 0.46b telecharger emule 0.46c gratuitement telecharger emule 0.45 b gratuitement emule 0.45 telecharger gratuitement telecharger gratuitement emule v0.46a