Financial Advisor Einar Vollset Highlights Critical Conflicts of Interest in M&A Sector

Einar Vollset, a prominent figure in the B2B SaaS investment landscape and General Partner at TinySeed, has publicly criticized what he views as significant conflicts of interest within the financial advisory industry. Vollset, who also leads the sell-side M&A firm Discretion Capital, specifically called out advisors who operate their own buy-side funds and those who conduct "educational" events with "lowest bidders" in the industry. His remarks underscore ongoing ethical debates in mergers and acquisitions.

"If you’re a sell side advisor, you shouldn’t have your own buy side fund to skim off deals and you shouldn’t do “educational” events with the lowest bidders in your industry," Vollset stated in a recent tweet.

Industry experts and legal precedents confirm that the practice of sell-side advisors simultaneously engaging in buy-side activities can create substantial conflicts. When an advisory firm represents a seller while also managing a fund that might acquire businesses, or has close ties to frequent buyers, there is an inherent risk that the advisor's interests may diverge from those of their selling client. This can lead to less favorable deal terms for the seller, as the advisor might prioritize maintaining relationships with repeat buyers over maximizing the sale price for a one-time client.

The Delaware Supreme Court's 2015 "Rural/Metro" case, for instance, highlighted how a financial advisor was found liable for aiding and abetting breaches of fiduciary duty due to undisclosed conflicts, including pursuing buy-side roles while advising a seller. This case established important guidelines for financial advisors, emphasizing the need for transparency and active monitoring of potential conflicts by company boards. Firms that offer both buy-side and sell-side services often face scrutiny, as their dual role can compromise their objectivity.

Vollset's second point, concerning "educational" events with "lowest bidders," suggests a concern about advisors potentially promoting service providers or solutions based on cost-saving incentives rather than quality or suitability for the client. While less explicitly documented in legal cases than direct buy-side/sell-side conflicts, this practice raises questions about due diligence and the integrity of recommendations. Ethical guidelines for financial advisors typically stress the importance of acting in the client's best interest, free from undue influence or undisclosed financial incentives from third parties.

Einar Vollset's background as a YC-alum, former Cornell CS Professor, and an active participant in both early-stage investing and M&A advisory lends significant weight to his critique. His firm, Discretion Capital, focuses exclusively on sell-side M&A for B2B SaaS companies, positioning him as an advocate for sellers' interests. His public statement serves as a reminder to companies seeking M&A advice to thoroughly vet their advisors for potential conflicts of interest to ensure unbiased representation.