Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Do venture capitalists collude?

March 28, 2011: 10:32 AM ET

Here's one of my favorite questions to ask entrepreneurs-turned-VCs: What do you now know about venture capital that you wish you had known as an entrepreneur?

The answers often are about the "business" end of venture capital, such as limited partner relationships or general partnership dynamics. A few weeks back, however, someone mentioned that he wished he had known that VCs like to collude on deals.

Not organized collusion, mind you, such as a dinner where everyone sets pricing limits (I kid, I kid). Instead, he was talking about scenarios in which one VC will call another and say: "Hey, I hear we're both working on the same deal. Why don't we team up, rather than bid against each other?"

This is particular true, he added, among VCs working in the same geographic market. Or among VCs in a relatively narrow industry vertical.

Most other VCs I've since spoken with about such collusion have strongly disagreed with its existence, saying that they only reach out to other firms after discussing possible syndication with the entrepreneur. They add, however, that entrepreneurs would be smart not to identify other firms they're talking to when meeting with VCs.

In other words: "VCs don't go out of their way to collude… well, unless they're given a paint-by-numbers on how to do it."

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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