Founders Lounge

How can a VC/Seed investor's "right to conduct activities" be beneficial for a tech startup?

By Peter Szymanski posted 28 days ago


@Silicon Valley Counsel: How is a legal provision acknowledging that an investor is an investment professional/organization, and as such reviews the business plans and related proprietary information of many enterprises, some of which may compete directly or indirectly with the tech startup's business (i.e., a "Right to Conduct Activities" clause), beneficial for the tech startup?

Often, the tech startup even agrees that investor will not be liable even if investor invests in any entity competitive with the startup, or action taken by investor to assist any competitive company, whether or not such action has a detrimental effect on the startup.

While sometimes it does not, the clause should include some protection for the startup by including an exception for unauthorized disclosure of the startup's confidential information, which means that the investor could still be held liable if they were to disclose such information to a competitive company.

Even with the acknowledgment that the investor is a professional/organization that reviews the business plans and proprietary information of many enterprises, some of which may compete with the tech startup, having a right to conduct activities can still be beneficial for the startup.

Firstly, the investor may still bring valuable skills, knowledge, and experience to the startup that can benefit the business. For example, the investor may have expertise in a particular technology or industry that the startup can leverage.

Secondly, the investor's involvement can provide the startup with the necessary capital to fund growth and expansion plans, which is particularly crucial for tech startups that often require significant capital to scale.

Thirdly, the investor's networks and connections may be beneficial for the startup, particularly in terms of introductions to potential customers, suppliers, and partners.

Finally, the involvement of a reputable investor can increase the startup's credibility and reputation in the marketplace, making it easier to attract new customers, employees, and investors.

Overall, despite the risk of competition and potential liability limitations, having a right to conduct activities by an investor can still be beneficial for a tech startup as it can provide access to expertise, capital, networks, and credibility that can help the startup achieve its strategic goals and objectives.

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1 comment



28 days ago

Silicon Valley Counsel, PC regularly answers everyday legal questions from #startup #founders#CEOs#CFOs, and #VCs.

Have a legal question or issue, email: