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When Venture Investors and Companies Clash

September 04, 2014

Christopher Steskal, Fenwick & West securities litigation partner and chair of the white collar/regulatory group, was quoted by the Daily Journal regarding some of the legal issues that can arise when start-up founders or executives find themselves in a dispute with venture capital investors who have joined their company’s board.

Among the issues that may arise is the potential conflict of interest when a venture capitalist is both funder and board member, and the effect this conflict of interest may have on board decision-making.

"In certain circumstances, the controlling shareholder has fiduciary obligations. What those obligations and circumstances are are very fact-specific and complicated, and the legal rules can be difficult to untangle," Steskal told the Daily Journal.

Major transactions are often a catalyst for litigation, Steskal said, because VC investors generally join a board at a pivotal point for such transactions, when decisions must be made on whether a company should go public, seek more private funding, be acquired or shut down.