Charlie Munger spent decades reminding investors that behavior follows incentives. Markets reward what they encourage and slowly eliminate what they penalize. That observation applies just as much to venture capital as it does to public markets.
“Show me the incentive and I’ll show you the outcome.” — Charlie Munger
Editor's Note: This essay concludes a three-part series exploring investor rights in private markets. If you haven't read them yet, start with "Small Investor Justice," continue with "The Ghost Founder and the Investor Who Wouldn't Look Away," and finish with "FAFO: When Founders Learn the Hard Way." Together, they explain why we believe investor accountability is ultimately a mechanism for creating stronger companies—not weaker founders.
Over the past several months, we’ve written extensively about a topic that rarely receives serious attention: small investor rights. We argued that investors deserve to be treated as partners rather than inconveniences, explored the costs of founders who disappear when businesses struggle, and examined what happens when contractual obligations are ignored until enforcement becomes inevitable. Those essays weren’t written to glorify litigation. They were written to ask a larger question.
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What kind of venture ecosystem do we create when investor rights actually matter?
Our answer is simple.
A better one.
This article is not about punishing founders.
It’s about creating a market that consistently rewards the best ones.
The Market Has an Incentive Problem
The venture ecosystem has developed a strange cultural imbalance.
Founders are celebrated.
Investors are expected to absorb whatever happens.
When companies struggle, the conversation almost always centers on runway, product-market fit, hiring challenges, or fundraising conditions. Far less attention is paid to whether investors continued receiving information they were contractually promised, whether governance standards were maintained, or whether communication remained consistent after the difficult conversations began.
As we wrote in Small Investor Justice, the people behind those investments are often invisible. They are former founders, operators, families, retirees, and professionals who invested after-tax dollars because they believed in an entrepreneur’s vision—not anonymous pools of institutional capital.
The problem isn’t that startups fail.
Failure is expected.
The problem is when communication, accountability, and contractual obligations fail alongside them.
Contracts Are Infrastructure
“Trust, but verify.” — Ronald Reagan
Every sophisticated market depends on infrastructure that participants rarely think about.
Accounting standards.
Property rights.
Contract law.
Financial reporting.
Without them, capital becomes hesitant because certainty disappears.
Investor agreements serve exactly the same purpose in private markets.
Information rights.
Inspection rights.
Pro-rata rights.
Protective provisions.
Warrants.
Board rights.
None of these exist because investors want to control founders.
They exist because private markets are fundamentally illiquid. Investors cannot simply click “Sell” when communication stops or governance deteriorates.
As we discussed throughout our earlier series, these rights were negotiated before capital changed hands. They are not optional suggestions that become inconvenient when circumstances become difficult. They are part of the economic bargain itself.
Good Founders Already Operate This Way
The irony is that the very best founders rarely fear investor rights.
They send updates before investors ask.
They acknowledge difficult quarters honestly.
They explain strategic pivots.
They answer uncomfortable questions.
They understand that investors are long-term partners rather than one-time transactions.
As venture capitalist Brad Feld has often written, the CEO’s first responsibility is communication.
Great founders understand this instinctively.
Weak founders often discover it only after trust has already begun to erode.
Investor accountability does not burden excellent companies.
It distinguishes them.
Accountability Creates a Flight to Quality
Economists use the phrase flight to quality to describe periods when capital naturally migrates toward stronger, more trustworthy assets during times of uncertainty.
We believe the same principle applies to venture governance.
When investor rights carry real weight, the economics begin to change.
Companies with disciplined reporting become easier to diligence.
Companies that maintain organized records become easier to finance.
Companies that communicate consistently develop stronger reputations.
Companies that honor agreements reduce future financing friction.
Meanwhile, companies that disappear, ignore obligations, or assume minority investors lack the resources to respond discover that poor governance carries its own cost.
Nothing about this punishes innovation.
It simply removes the hidden subsidy that bad governance has historically enjoyed.
Markets improve when professionalism becomes economically valuable.
Our New Responsibility
Through the Newchip bankruptcy proceeding, AdValorem acquired economic interests across more than 218 private companies.
That portfolio represents something larger than a collection of warrants.
It provides a unique window into how hundreds of venture-backed companies communicate with investors after the fundraising celebration ends.
Some companies have been exceptional.
They communicate regularly.
They engage investors.
They share wins and setbacks alike.
Others have gone silent.
Others appear to have deprioritized investor communication entirely.
Others may simply have underestimated the importance of the agreements they signed years ago.
These companies now face a choice—not because we created one, but because markets eventually do.
We Are Not Looking for Litigation
One misconception about investor rights is that enforcement is the objective.
It isn’t.
Building valuable companies is.
The fictionalized stories we shared in The Ghost Founder and the Investor Who Wouldn’t Look Away and FAFO were never intended to celebrate lawsuits. They illustrated something much simpler: ignoring contractual obligations can eventually become more expensive than honoring them in the first place.
Litigation benefits lawyers. Trust creates enterprise value.
We would much rather spend our time introducing customers, making strategic connections, supporting financing rounds, and helping founders build enduring businesses than discussing legal remedies.
That is a better outcome for everyone involved.
Why This Matters for Every Founder
Warren Buffett famously said,
“It takes 20 years to build a reputation and five minutes to ruin it.”
Private markets are becoming more transparent every year.
AI makes information easier to organize.
Secondary markets continue to mature.
Founder reputations increasingly follow entrepreneurs from one company to the next.
Today’s angel investor may manage tomorrow’s family office.
Today’s syndicate member may lead tomorrow’s institutional allocation.
Today’s minority shareholder may become tomorrow’s board member.
The cost of treating investors poorly is no longer confined to a single cap table.
Reputation compounds.
So does trust.
Accountability Is Pro-Founder
This may sound counterintuitive, but we believe stronger investor rights ultimately benefit founders.
Professional governance lowers financing friction.
Transparent communication attracts higher-quality investors.
Reliable reporting builds institutional confidence.
Contracts that are consistently honored reduce uncertainty throughout the capital stack.
In other words, investor accountability doesn’t create weaker startups.
It creates stronger companies.
The founders who embrace these principles early won’t simply avoid conflict.
They’ll become more attractive businesses.
A Letter to the Companies We Own
To every company in our warrant portfolio, our message is straightforward.
If you’ve built something meaningful, we’d genuinely like to hear about it.
If circumstances have changed, tell your investors.
If your business has struggled, communicate before silence creates unnecessary uncertainty.
If agreements need to be revisited, begin the conversation before someone else has to.
Capital has a remarkably long memory.
Fortunately, it also has an extraordinary capacity to reward integrity.
Our goal has never been to create fear.
Our goal is to help create an ecosystem where founders who respect their investors become the easiest companies to finance, the easiest companies to diligence, and ultimately, the highest-quality companies to own.
If that happens, everyone wins.
Founders.
Employees.
Customers.
Future investors.
And the innovation economy itself.
Because the strongest markets aren’t built on blind optimism.
They’re built on trust.
And trust begins by honoring the commitments we voluntarily make to one another.
If you are a warrant issuer and want to resolve your warrant without litigation, schedule a call: https://tidycal.com/advalorem/syndicate
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