Joi Ito On The Investment Process
I'm catching up on things that happened while I was gone on vacation. About a week ago Joi Ito posted a synopsis of the investment process they use at Neoteny. Along with Tim Oren's recent piece and some of David's writings last week, a lot of good information is coming online to help entrepreneurs better understand how VCs think.
In terms of Joi's post, I would take issue with only one thing he writes: the idea of the no-shop. This is not something we've seen on Sand Hill and not something I would consider particularly entrepreneur friendly. It's been our point of view (which Naval described in more detail here) that an open and straightforward investment process works best. Neither side should be constricted by anything preventing it from getting as much information as is possible. An investment in an early stage company is a long-term decision for both sides and is something that should be decided based on full knowledge of alternative opportunities. That's very hard to accomplish with no-shops.
I guess I would say it depends on the stage. When you are investing rather large amounts later stage like I think you do, you're right. We often spend months with entrepreneurs building their business plan, helping them recruit, paying expenses, etc. In order for us to feel comfortable incurring these expenses without feeling like we are increasing value before we are "in" a no-shop makes sense. Basically, when we sign the no-shop. Don't EIR's have a no-shop sort of agreement with the people they work with?
Joi... fair enough, you're focused on an earlier stage than we are. And to answer your question: in general, the EIR agreement isn't a strict no-shop type of agreement. There's every assumption that the EIR will want to work with the VC on whatever comes of the relationship but there have been instances where that hasn't happened. There's a good deal more trust in VC relationships with entrepreneurs than one might expect at first glance.