Consider this scenario: An investor at a venture capital firm pulls out his personal checkbook and makes a bet on a small but promising startup. Later, the VC firm he works for comes along and backs the same startup—increasing its value tenfold.
Is it fair? Personal investing, and the profit it can net individual investors, has long fueled debate in Silicon Valley and beyond. Some believe that personal bets are a good way for investors to get introduced to hot startups early, giving their firms a critical advantage. Others think that the potential for conflicts of interest is too high, given the incentive for VCs to promote startups they already own—possibly at higher valuations than warranted.