Conflict of interest occurs when personal, financial, or professional entanglements could improperly influence decisions owed to another party.

How it works

In VC, conflicts appear when one GP sits on competing boards, the firm invests in adjacent companies sharing customers, co-invest allocation favors certain LPs, or affiliates charge portfolio companies for services. Limited partnership agreements and ADV filings describe conflict policies, disclosure, and LPAC review for related-party transactions. Corporate law duties apply to directors—loyalty and care—regardless of VC norms. Founders signing venture debt or vendor contracts with fund affiliates should scrutinize terms. Conflicts are managed through disclosure, recusal, independent committees, and sometimes LP consent—not always elimination.

Why it matters

• Founders: Ask investors how they handle competitive overlap and information walls. Side deals with fund operating arms should be arm’s-length.
• Investors (LPs): LPAC reviews co-invest and fee offset practices; opaque conflicts trigger redemption or re-up hesitation.
• Board members: Document recusals and prioritize company interests in related-party approvals.

Common mistake

Assuming “we’re all aligned” means no conflicts exist. Overlap is structural in VC; governance depends on transparent handling, not denial.

Related ideas

Fiduciary duty, LPAC, co-investment allocation, information wall, and related-party transaction are adjacent governance topics.