Union Square Ventures - Latest Comments in Why We Don't Invest In Competitive Businesses

Re: Why We Don't Invest In Competitive Businesses

Steve — Sat, 21 May 2011 15:39:42 -0000

Great question. Sometimes I have a hard time distinguishing between a prospective competitor and a strategic partner, and with time pressures, tend to try to do deals with people who will move us along without worrying too much about whether they might be competitors down the road. What are your criteria for making that kind of distinction?

Re: Why We Don't Invest In Competitive Businesses

fredwilson — Mon, 21 Mar 2011 17:40:46 -0000

couple things on this:

1) getglue pivoted into its new focus about three years after we invested.
we cannot stop our portfolio companies from doing that.

2) we think checkins are a fundamental form of mobile/social interaction.
the key is that the two companies are doing different kinds of checkins

Re: Why We Don't Invest In Competitive Businesses

jessas — Mon, 21 Mar 2011 17:36:09 -0000

Great perspective - what about companies like Foursquare and Getglue from your portfolio. They seem to be in "check-in" business... Oh though might be different check-ins for location vs check-ins for books/movies, but it feels somewhat on a collision course. Or you look at those as complimentary?

Re: Why We Don't Invest In Competitive Businesses

Stephen — Sun, 13 Feb 2011 09:21:58 -0000

Great perspective . Loyalty is invaluable. At the end of the day, my view is that you walk the slippery slope with "competitive", but if you bring the values that you are describing to the table, then you will be alright. It is not hard to imagine different spouses sharing functions (e.g. nannies, chefs, and spouse; all sharing the "child-raising" and relationship management functions) just as it is not hard to imagine a market being defined by different things - even though we are aimed at the same audience. We focus on data, you focus on video, and "he" focuses on photos and articles. We are all looking for high schoolers, but addressing their interests in different ways. I like the values you are referring to.

Re: Why We Don't Invest In Competitive Businesses

fredwilson — Fri, 04 Feb 2011 14:45:05 -0000

Tricky situation but we can deal with it and protect both sides

Re: Why We Don't Invest In Competitive Businesses

Jared Daniel — Fri, 04 Feb 2011 14:23:44 -0000

What about the situation where a startup identifies USV for the potential relationship they could forge with one of your portfolio companies. While competition is not necessarily direct, the two companies are parallel to each other and a strategic partnership would be desire if not inevitable. The startup's main concern is that their idea will be duplicated by the portfolio company

Re: Why We Don't Invest In Competitive Businesses

fredwilson — Mon, 16 Aug 2010 08:52:57 -0000

Yes

Re: Why We Don't Invest In Competitive Businesses

Ross — Fri, 13 Aug 2010 12:44:37 -0000

Would you invest in a company that was using a competing service of one of your investments? For example, would you invest in a company that uses If By Phone as their main telephony solution instead of Twillio?

Re: Why We Don't Invest In Competitive Businesses

fredwilson — Wed, 11 Nov 2009 22:38:46 -0000

i would not invest in a competitive company even if they had a better model
than our company

it's ultimately a reputation issue and reputation is everything in the VC
business

2009/11/11 Disqus <>

Re: Why We Don't Invest In Competitive Businesses

Faruk Patel — Wed, 11 Nov 2009 12:02:24 -0000

I understand the complications that can arise by investing in a competing company.

But, the questions that come to my mind are:
- What if the team of the competing company is a lot more efficient and/or has a better execution plan than the previously invested-in company? And
- Do VCs/Angels give a higher priority to teams, technology or users?

Re: Why We Don't Invest In Competitive Businesses

matt lucas — Wed, 31 Jan 2007 16:29:40 -0000

invest in a competing business? no way. take investment from a VC with a silimar portfolio company? no way.

at my startup, our investors had a loosely competitive company in their portfolio. it was a disaster. i never knew who's interest my board members were looking out for. we actually ended up OEM'ing our product to the portfolio company. i didn't want to do the deal, but the VCs "as investors" wouldn't consent to a new round of VC until i did the deal.

in my experience, VCs and management need to be 100% aligned. otherwise, distrust perculates and bad things happen.

oh, and by the way, the portfolio company sold for $300M+ to a competitor. sigh.

Re: Why We Don't Invest In Competitive Businesses

Robert Dewey — Sat, 20 Jan 2007 11:10:27 -0000

This is a good reason why startups need to research the VC's they are interested in, rather than blindly throwing around business plans. First of all, check the focus - make sure you're in the right sector... Then check the team and the portfolio - I wouldn't really want a VC investing in my startup if they are currently on the board of a competitor.

Due diligence is a two way street.

Re: Why We Don't Invest In Competitive Businesses

fred wilson — Thu, 18 Jan 2007 06:39:49 -0000

Kevin - we wouldn't choose to adopt a Ycombinator type model. i am glad that Paul is doing it, but it's not in our future.

Nick - i have no problem with our LPs backing VCs that we compete with. The fact is our LPs are just not as involved in our business as we are with our portfolio companies.

Lance - you make a good point about first come/first serve. I've often thought about that problem. but i still come away with the conviction not to invest in competing companies.

Re: Why We Don't Invest In Competitive Businesses

Lance Weatherby — Wed, 17 Jan 2007 13:47:02 -0000

I work for the Advanced Technology Development Center (ATDC) down at Georgia Tech. One of the policies at the ATDC is that we do not let competitive companies into the incubator. Since I joined last October I have questioned the wisdom of this from time to time.

Just because a particular entrepreneur comes to us first should not necessarily preclude another with a good concept and plan from joining I have said on more than one occasion. After all our job is to help entrepreneurs launch and build great companies. The more the merrier. Right?

You have me rethinking my stance.

Re: Why We Don't Invest In Competitive Businesses

Jean-carl — Wed, 17 Jan 2007 10:32:12 -0000

Nice thought

I adapted and translated that article in a french blo

Re: Why We Don't Invest In Competitive Businesses

mathew — Wed, 17 Jan 2007 01:11:14 -0000

'open marriage' is what kids put on their myspace pages as a joke - and a funny one at that. i am pretty sure that myspace/facebook is the primary venue for this term.

Re: Why We Don't Invest In Competitive Businesses

andre taliercio — Tue, 16 Jan 2007 18:59:59 -0000

Tend to agree Fred, an investment means you found the best management team/product/business model in its niche. Investing again in the same niche means that your current investment is failing so are you are trying to edge. Is that the right choice? Answer might be a case by case.

Re: Why We Don't Invest In Competitive Businesses

Nick — Tue, 16 Jan 2007 16:26:32 -0000

Fred,

Turning this around, how do you feel about your Limited Partners backing other VCs in general and specifically those that you compete with on a regular basis?

Re: Why We Don't Invest In Competitive Businesses

kevin — Tue, 16 Jan 2007 11:06:47 -0000

Fred,

Any thoughts on bringing something like the TechStars and YComb type idea tanks to NYC?

Re: Why We Don't Invest In Competitive Businesses

ventureblogalist — Tue, 16 Jan 2007 09:08:16 -0000

Daryn, it's a hedge on management and maybe the business model, but not on the space. So it could be overweighting.

Re: Why We Don't Invest In Competitive Businesses

fred wilson — Tue, 16 Jan 2007 06:16:23 -0000

Zach - that is great question. though TACODA and FeedBurner are both ad networks, they really don't compete much because their unique value add is different. In fact, they are working together. But it does require some judgement on our part in cases like that.

Perry - we will not sign NDAs, but if we went around disclosing confidential information, we wouldn't see any more business plans. confidentiality is a critical aspect of the VC business.

Re: Why We Don't Invest In Competitive Businesses

Perry — Mon, 15 Jan 2007 18:34:03 -0000

Glad to see a few recent posts from you fellas lately. I am curious if you feel an obligation not to disclose perhaps unique business methods of a company that you review and then decide is a competitor to the company you already are invested in.

For a very simple and obvious example: if you had invested in myspace and facebook's business plan came across your desk with information about the future roll-out of an important new twist, would you disclose the "twist" to your company -- in this example myspace.

Since VCs don't sign NDAs where is the ethical line drawn? how i it actually practiced in the real-world?

Keep us the great work.

Re: Why We Don't Invest In Competitive Businesses

Zach Coelius — Mon, 15 Jan 2007 18:23:03 -0000

How do you deal with companies that revolve around the same space but have very different solutions? For instance both Feedburner and Tocoda are focused on the online ad space but have different approaches to the problem. It would seem that there may be potential conflicts. If you have the ear of an advertiser and they ask where to run their ads, where do you suggest? If nothing else it seems that as more and more of the web s to revolve around advertising the line might get a little gray in this case.

Re: Why We Don't Invest In Competitive Businesses

ilan abehassera — Mon, 15 Jan 2007 16:40:12 -0000

Well I guess it is a fair way to invest ! I hope the case doesn't show up too often, because sometimes you might have invested in the wrong player !

Re: Why We Don't Invest In Competitive Businesses

Steve — Mon, 15 Jan 2007 15:00:44 -0000

Fred, as an entreprenuer, I agree with 1,000,000,000,000,000,000,000%

If nothing else, what VC can say with a straight face that there is no breach of fiduciary responsibility when one sits on the Board of a company while also having insider info on a competitor and not continuously cross-disclosing any/all such competitive info (a requirement that would make it impossible to invest in competitors -- that is, if one is honest)?

Also, hell, last time I looked, as a founder or exec or CEO (or even staff member) I am required to sign NDAs and Non-Competes and the like. It would feel mighty bad to know that my Directors/investors don't feel honor-bound to not disclose and not compete. Or maybe they will let me off the hook of my pledges?

This subject rates a huge BLECCCH in my book. Talk about massive morale problems. Talk about massive dysfunctional Board relationships.