Should VCs adopt a “Code of Conduct?”

Jan 24, 2014
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It’s not a stretch to say that the permeation of the Internet in everything we do has lead to more transparency, more accountability & more visibility into what people do and what happens in the world. Countries cannot downplay revolutions, because Twitter knows about it before they do. The NSA can’t get away with spying on the world (forever), because eventually someone will leak it to the world, and it will become a social problem, instead of a political one.

However, at the heart of the innovations that have improved, extended, and evolved the Internet we’ve come to love, lies perhaps one of the last frontiers for transparency – Venture Capital. From the outside, you may be familiar with phrases like “the terms of the deal cannot be disclosed” or the dreaded “Under NDA” (Non-Disclosure Agreement); however, behind closed doors, there’s even less transparency, and the things that go on often produce situations that both the victim and purveyor have an interest in keeping under wraps.

“I have met too many founders in London, Edinburgh, Berlin, Belgrade, and beyond that have been (pardon my Americanism) screwed by unscrupulous or unprofessional VCs or angels.” – Gil Dibner, “Towards a VC Code of Conduct

In an effort to debunk the stereotype of the ‘shady’ VC, DFJ Esprit Partner Gil Dibner recently posted an article to his personal blog called “Towards a VC Code of Conduct.” In his post, he proposed a certain number of guidelines, that he himself will try to follow, and that he thinks would bring more clarity to the relationship between Founder & Funder.

Some rules are grey, such as “I will do no harm,” or “I will not string you along,” – each with their respective explanations – while some are concrete: “I will let you know about any competitors in our portfolio” & “I will be transparent about any conflicts of interest between an entrepreneur and myself” underscores the tensions that sometimes arise when VC’s reveal too late in the relationship that they have a conflict of interest.

“Gil’s article is fantastic.  It’s also depressing that he felt compelled to write it.  It is yet another indictment that many VCs behave poorly and have given our ecosystem a bad, but deserved, reputation.” – Jason Mendelson, “I’m Adopting a VC Code of Conduct

In addition to being featured on Venturebeat, the concept was also picked up by Foundry Group Managing Director Jason Mendelson. Other supporters include Accel Partners’ Chrys Chrysanthos, and Atlas Ventures’ Fred Destin. Kima Ventures’ Jeremie Berrebi enthusiastically backed the idea, noting that the SLA of Kima15, their recent initative to invest $150K for 15% with a turn-around of 15 days, shares the same transparent principles.

“If you need an industry standard set of value to behave properly and be fair to entrepreneurs then there is a broader problem that won’t be solved by any solemn declaration of principles. ” – Martin Mignot, Index Ventures

Not all were in agreement, though. Index Ventures’ Martin Mignot feels that, if there is a problem of honesty & ethics, that a declaration of honesty is not a solution. I can’t help but agree that, at the very least, it is not investors like Dibner & Destin that we need to worry about, but those who are unwilling to declare their set of principles.