Sandy Lerner: Investors Aren't Friends

Wed, 27 Feb 2013 09:20:07 -0500

After getting pushed out of the business she loved, this Cisco co-founder learned a valuable lesson about working with VCs.

In 1984, Sandy Lerner co-founded Cisco Systems with her now-ex-husband, Leonard Bosack, to market the technology they co-developed for connecting computer networks. But after making a bad deal with an investor, Lerner found herself pushed out of the company shortly after it went public in 1990.

After funding the company for three years by mortgaging everything we owned and putting everything on credit cards, we made an absolutely bozo no-no.

We decided to take money from a VC, Don Valentine. He got 30-odd percent of the company for $2.6 million. Len and I were very naïve. We used Don's lawyer and agreed to a four-year vesting agreement. We would get 90 percent of the founder's stock after four years. But we didn't get an employment contract.

When I was fired, it was devastating. I spent years crawling out from that. I did not understand an investor could be an adversary. My family had a small business. I always thought that if someone invested in your business, that meant he or she believed in it. I assumed our investor supported us, because his money was tied up in our success. I did not realize he had decoupled the success of the company from that of the founders.

I don't believe all VCs are adversarial, but the first thing I tell everyone is: Get your own lawyer. Don't buy lines like, "You guys are busy; we'll just have someone draw up some papers, and it will be very pro forma." Yeah, right.

My second piece of advice is to separate yourself from the company. What is good for you is not necessarily good for the company, and vice versa. At Cisco, I made every decision based on what was good for the company, and that pretty much ruined my marriage and my health. Len and I believed a company and its founder are the same. They absolutely are not.

Previous job:Director of the computer facilities at Stanford's Graduate School of Business
First paying customer: Ohio State University
Cisco's current market cap: $112.3 billion