This account is vague about the most critical point: was there a handshake deal? The phrase "the company agreed on a price" suggests there might have been. But not necessarily; they might have been talking about what the price would be if they did a deal.
If there was a handshake deal, the company should certainly have stuck with the original VC. Not because of any complicated rules about who introed whom to whom, but simply because you have to honor handshake deals.
If there was not a handshake deal, it's less clear. The company seems to have been fairly eager to raise money. Which implies they'd have taken a sufficiently good deal if one was offered. Which implies it had been in the investors' power to get a handshake deal if they wanted one, and if they didn't have one, they essentially blew it by negotiating too hard. If so then I don't think the company would be obliged to stick with the original investor.
But I'm just speculating; it's impossible to say for sure without knowing more.
No way. A VC will not honor a handshake deal. They probably won't renege simply because they can get a better deal elsewhere (that's not how they operate - if a deal is good they take it, as they have the luxury of being able to participate in lots of deals), but if your market segment starts looking less favorable then they'll probably dump you.
Well put but it raises a (possibly naive) question. At what point can one assume that a 'handshake deal' has taken place, and is that point really the same for both parties? e.g Is it literally a handshake and the words "We're going ahead with this!" Or could it be more vague where one party thinks there's a deal but the other's not so sure.
You've said that deals exist to fall through and that "The key to closing deals is never to stop pursuing alternatives ... don't believe it till you get the check." [1] From my point of view, I'd want to spend as little time as possible in 'handshake-limbo' and get something signed. The deal might still fall through but the intent to close is more explicit.
Aside: Mark says "... so I thought they should take the deal", which implied to me that not taking the deal was still a valid option. i.e. no handshake.
The Zuckerberg Washington Post(Graham) and Accel situation is one counter example - Zuckerberg walked away from a handshake deal and I suspect it didn't exactly hurt his reputation.
I dunno, everyone considers him sleazy, underhanded, and not trustworthy. If I had a startup and he came to me and wanted to invest unlimited money into my venture, I would tell him to get the hell out. If the opposite was true, and he had a venture that needed investors, I'd pass and go invest in a company ran by people who actually give a damn.
If there was a handshake deal, the company should certainly have stuck with the original VC. Not because of any complicated rules about who introed whom to whom, but simply because you have to honor handshake deals.
If there was not a handshake deal, it's less clear. The company seems to have been fairly eager to raise money. Which implies they'd have taken a sufficiently good deal if one was offered. Which implies it had been in the investors' power to get a handshake deal if they wanted one, and if they didn't have one, they essentially blew it by negotiating too hard. If so then I don't think the company would be obliged to stick with the original investor. But I'm just speculating; it's impossible to say for sure without knowing more.