5 VC gambits start-ups should watch out for

#1) You're in charge (yeah, really): A looming VC investment may make the founders nervous about letting these suits into the company, taking over completely and relegating them to mere employees (which is pretty well what's gonna happen regardless of what they tell you or how it's framed).

So the VC may hand out titles in a way to allay those fears. Nervous about control? Well you're the president! How can you not be in control now? We're just going to appoint one of the fund partners CEO but he won't be micro-managing you. Honest. Or you get to stay CEO, but don't think for a second that the VC's won't control the Board, so either way, it's academic.

#2) Control the Board It is said the key to chess is to control the middle four squares of the board. The VC's will control yours. It may be take some elegant math but either they'll have more seats than you outright, or you will have equal numbers of seats on the Board plus an odd number of "independents". Try nominating any of your associates to the indie seats or especially to that crucial swing seat. Watch that get shot down. Any candidate presented from your side of the table will not be "mutually agreed upon".

The VC's have deeper rolodexes, they will just keep throwing candidates at you until you finally capitulate and "mutually agree" to one of their nominations. Guess which way they'll vote when the matter of firing the founding CEO (read: you) is on the table?

#3) You're the majority shareholder A lot of energy gets wasted by founders trying to retain majority control of the shares in the hopes that it'll keep them in charge. Combo deals like investment split into part equity/part debt but this is all just optics to suck in/lull/mollify the founders into believing they'll still have control after the funding.

But then the term sheet will have all kinds of kookiness. You can bet on having a special share class for the VC's and a whole pile of special conditions that require approval of the pref shares (the ones the VCs own, not the commons, which you own more of). At the end of it, special priviledges will be attached to those preferred shares and embedded in the term sheet which make being the majority common shareholder meaningless (never mind liquidation premiums and preferences).

#4) A loyalty test This one is perverse. The VCs will want to make you feel part of their team and that by taking their money you will get to play at a whole new level. Kind of like being called up into the major leagues from that penny ante bush league you were languishing in before they came along.

In my case I was asked to meet with another partner at the firm to give him advice on another industry I have familiarity with, he was about to make an investment in that industry (or already had, can't remember). So after about an hour after we kick some ideas around he offers me the CEO job at this other company. I was floored and for a few days, tempted.

It all seemed so easy, why buy out my partners and forge ahead when I could instead sell, pocket the cash and come run this glamorous, funded, cool start-up instead?

In the end, I declined, another lucky decision. In retrospect it seems the entire exercise was sick mind game designed to test my resolve.

#5) Join us, become one of us Having passed the loyalty-to-the-plan test, I was then invited to sit on the advisory board of the above start-up. "Sure" I thought. I'm in the club now. These guys will fund me and I get to sit on advisory boards and join the startup jet set. A decade in the business avoiding minefields and I'm still susceptible to having ego stroked.

After the deal fell through, I rarely heard from the start-up upon who's advisory board I supposedly sit. Occasional email exchanges, "so how's XYZ Corp" going? "Oh great, thx", no mention of "We need to fly you out to California to meet the CEO" (plenty of talk like that when we had a signed termsheet though)

Finally after that VC emailed me the other day on an unrelated matter I asked him point blank "Am I still on your advisory board or were you just blowing smoke up my ass to help your firm get into my pants?"

No reply.

I guess there's my answer.