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As a rule, VC's tend not to back husband and wife teams or other "family" dominated management teams. This rule strikes many successful husband/wife or family teams as a misguided or perplexing.
Now like any rule, there are exceptions. One of the DC area's most successful software companies, WebMethods, was led by a husband/wife team and was venture backed. So why don't VC's tend to support family teams?
The offered explanation is two fold. First, the introduction of a family element into an investment decision carries with it an incremental measure of risk. That risk, the family risk, is that divorce, disagreement or dispute will render the management team ineffective or incapable of managing the enterprise. Further to that, since it is a family -- undoing the deadlock can be problematic or impossible for an outside investor. Second, research and experience has shown that the best available management talent will not gravitate towards a family run business. The best talent has skills and ambition. They won't join a situation where upward mobility may be limited by family relations. If the boss' son is in line for the promotion -- the merit driven achiever may lose out for reasons neither fair nor performance based. Given that there is always demand for the best management, the people that make up that pool have a lot of choices. And they will choose, typically, to avoid the family run business.
So, that's why VC's shy away from the family business model -- higher risk and greater challenges to building a world class team. This isn't to say that they aren't exceptions to this rule. There are many.
But if you're going to try and raise money from VC's, this is the bias of many to stay away from the family component and one is better to know that going in.
You spelled Problematic, "Probelmatic".
Posted by: Dr. Mooko | July 31, 2008 at 07:40 PM
Thanks, I'll fix it.
Posted by: Don | August 04, 2008 at 10:34 AM