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Sometimes, conflict between VCs and entrepreneurs is a good thing

(Editor’s note: Jeff Bussgang is a General Partner at Flybridge Capital Partners. This column originally appeared on his blog Seeing Both Sides.)

You hear the word ‘alignment’ thrown out a lot in business conversations.  And while it’s a wonderful thing to aspire to, it’s hard to achieve – particularly in entrepreneurial settings between the venture capitalist and the entrepreneur. It’s there, after all, that the stakes are high and there’s the ever-present risk of dysfunctional behavior leading to a Start-Up Soap Opera.

Ever since I began the research for my book, I have been spending time thinking about why VC-entrepreneur alignment is so elusive.  And so when the Kauffman Foundation asked me to give a presentation to their recent class of young VCs, I decided to take the opportunity to develop a few thoughts that teed up the key issues.

I concluded that despite all the aspirational rhetoric about VCs becoming more “entrepreneur-friendly,” there are structural reasons why VCs and entrepreneurs are not always aligned.  In negotiating term sheets, performing the inside-outside financing dance, discussing exit scenarios – and many other elements of the start-up journey – misalignment between VCs and entrepreneurs is common, natural and inevitable.

VCs and entrepreneurs have a hard time dealing with these areas of misalignment because they are human beings.  And like nearly all human beings, they have a hard time facing conflict dead on.  Conflict makes us uncomfortable.  No one wants to be the “bad guy/gal” and so try to gloss over real differences or sweep them under the rug.

I argue instead that VCs and entrepreneurs should explicitly acknowledge these areas of misalignment and talk about them openly and directly.  Only by naming these points of conflict and appreciating the other side’s point of view, can you really begin to develop the solutions to these points of conflict.  As Mark Pincus of Zynga told me when I interviewed him for Mastering the VC Game, “Don’t be a victim.  Don’t look at the [conflicts and drama] personally, look at them structurally.”

The presentation (embedded below) lays some of these issues out further.

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