I recently had one of the most troubling experiences as an investor.
We invested in a founder who threatened us with legal action simply because we asked for quarterly financials.
Here’s the full story.
Standard Practice
From my experience running a VC fund previously, I saw that most founders were great at sending quarterly updates.
This isn’t an unusual request. It’s actually standard practice in the investment world.
Legal Obligations
Many VC funds NEED these updates because we have a legal obligation to our own investors (Fund LPs) to provide an estimated portfolio value.
Without any news from a founder, we have to assume the worst and mark a company down to zero, which is bad for everyone involved.
The Revelation
After many investors pushed for transparency, the founder let us all know that we invested on a YC SAFE, which means we have ZERO information rights.
Unfortunately, it turns out he is correct about this.
Escalation
Things got worse when he privately messaged us and other investors, stating that if we emailed the investor list again, he would take legal action for tortious interference.
Current Situation
No one has emailed the investor list in 6 months. I have since started another company but am still bothered by this situation when I think about it.
Your Input
This experience highlights the potential pitfalls of certain investment structures and the importance of understanding your rights as an investor before committing funds. The YC SAFE structure, while founder-friendly, can leave investors in a difficult position when it comes to basic transparency and communication.
If you were in my shoes, what would you do? This situation serves as a cautionary tale about the importance of reviewing investment terms carefully and understanding the implications of different funding structures.
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