Because as part of the VC investment, they are also taking positions on the board of your company. Maybe enough of a position that they can oust you if you don't do as they "suggest". Also, one round of funding is rarely the end of it, and if you are demonstrating that you are not playing their game and trying to become a Unicorn, then you will not get a second round of funding.
That makes sense to me that in these two particular situations they have leverage. But what if they don't have enough board seats and you also aren't looking to raise a subsequent round? It sounds like then they don't really have leverage, right? If so, it seems easy enough to guard against the risk that VCs end up with too much leverage over you.
> then you will not get a second round of funding.
A couple of years ago when the VCs were throwing money around like crazy, I had this bright idea that perhaps all I'm ever going to need is a single round of funding. Use the money to put the company on a modestly profitable track, cut the head count, cut the cloud costs, eliminate the office, and cruise along indefinitely. Just like passive income, but on a corporate scale.
The reason this doesn't work is that the market changes very, very quickly in our industry. You can't just put your app on cruise control and expect a consistent ARR forever. As soon as some other VC finds out that you aren't making an "optimal" use of your money, they'll invest in a competitor who will eat you alive for breakfast.
Hmm. I can believe this happens, but definitely not all VC investors take board seats. In fact I'm not aware of this having happened at any of the 5 startups I've worked for in my career, despite having at least partial knowledge of who made up the board of 3 of them (for at least 1 of whom I know the entire board membership and can say with certainty there were no VC plants on it).
Would be interested in stats on how normal this is or information about VCs' policies on it.
Why do you think VC control is bullshit?