Ideas that add up #24

The founders and financial backers of new ventures typically anticipate a period of cooperation, during which they will have a shared interest in growing the firm and enhancing its value. Both parties may find common ground in negotiating early capital investments or marketing strategies with longer-term payoffs. Over time, however, the equity investors begin looking forward to an IPO or sale and become much less enthusiastic about investments that do not promise quick, low-risk increases in valuation. The founders, meanwhile, may remain passionately committed to long-term growth and long-term investments.

Experienced investors (and even some founding entrepreneurs) anticipate this likely divergence of interests and seek to ingrain — from the beginning — a social contract that anticipates and detoxifies it. They sometimes remind each other from the outset about how economic interests necessarily diverge over time in cases like this, and about how important it is to understand that these differences are structural, rather than personal.

Lax and Sebenius in 3-D Negotiation

At a wedding once, the father of the groom suggested to me that marriage contracts should be valid for a fixed period, say ten years. Then the renewal optional. Considering that 50% (disclaimer: stat plucked from mid-air) of marriages in the UK now end in divorce and a sizeable chunk (anecdotally) of the remainder are kept afloat unwillingly by one or both partners, the limited-overs approach seems sensible. In fact, what on earth possesses us to think that such a thing as decades-long love for an unrelated stranger, is possible? Let alone passion. Wouldn’t a long-term state of mutually amused toleration be a more realistic ambition for the couple serious about making a joint life of it? And since most couples can’t even achieve that, how about borrowing the detoxification method above from the VC playbook?

Our interests will diverge, my love, but we won’t take it personally. Let us both be clear from the start that one or other of us will at some point choose to exercise the opt-out clause. Divorce, from Latin divortium, meaning “watershed” or “fork in the road”.

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