Portfolio ventures that are going great need almost no support, and the ones that are in the bottom aren’t worth helping. Apart from the two extremes, how do you know how much effort, time, persistent to put in the ones that are somewhere in the middle?
I started my business career in 1993, and spent about half as a venture capitalist (Boston & San Francisco) & half an as entrepreneur (unicorn, middle & zero), engaged with teams, investors & boards (member, observer, committee member, etc) at many stages & cultural styles over the years.
What I have learned is that building a company is hard work. CEOs / Executive Teams / Boards / Investors need support at every stage to be honest – whether the company is doing well, having a challenge getting to market or somewhere in the middle.
The key is “fit”. CEOs / Entrepreneurs get very frustrated with Investor / Board Members who create work that is a distraction. Investors get frustrated with CEOs / Teams when they don’t understand that their mandate is to make money for their LPs & if formally on the board they have a dual fiduciary (duty of care as a board fiduciary for all shareholders & to make money for their investors.)
Having been on both sides – an approach of “no surprises” helps create a productive work environment. Like any good relationships – the key is communication (proactively), & getting into business with people with the same values, so that whether things work out or not, everyone feels they did the best they could along the journey together in service.
Personally – I try to allocate my time where I can be of most assistance. That has evolved over the years, as I gained different types of experience. I try to customize for each CEO. That said, there are many styles to be a productive investor & it depends upon the CEO & board.
How do you balance your time between (1) sourcing quality prospect ventures (2) doing due diligence for prospective investments and (3) helping current entrepreneurs? Which of these are you comfortable outsourcing to principals/analysts and which do you absolutely have to do yourself?
In my first job back in 1993, we emulated TA’s proactive deal flow approach – initially created by Jackie Morby back in 1978. For me, she is historic for the venture industry. Many of us tried to emulate her proactive approach. From that lens, I am very open to building a team which generates deal flow if appropriate for your firm.
As far as helping with portfolio management, I think the key is that she/he has high EQ and is optimized to adding material value for a CEO & minimizing being disruptive.
This does not mean there are not constructive conflicts, if helpful for all involved; however, discussions are always best when both sides understand each other & there are “no surprises”, at least as much as possible on all sides. In general however, my view is to optimize “fit” for a team members roles to what they are naturally good at & how she/he wants to evolve her/his career.
Many GPs are good investors but don’t master one of the core skills – adding value as a board member. What do you think are some tricks to a productive relationship with founders? What should the culture be for the board and CEO for a quality relationship?
If an investor is truly not good at adding value as a board member, she/he should learn to become a fiduciary – possibly by being a board observer, formal training, or mentorship. I strongly do “not” believe in “tricks” with founders. In fact, I feel quite the opposite, especially have been on that side as well. I believe relationships between founders & investors are strongest with understanding & a feeling of care, even (especially) when the discussions are the tough ones.
The culture for a CEO & Board for a quality relationship? I think there are a few primitives for all relationships – understanding, respectful conversations, open communication and availability. I guess it’s the golden rule of “treat others like you would like to be treated”. That said, in addition to the baseline primitives, my initial instinct is to nudge both investors & CEOs to be adaptable, good listeners, & find common ground.
Nowadays, mental health is more present than ever, with things like burnout, stress, depression, among others. What do you think of external intervenients like executive coaches, both for a founder and for a VC partner? Do they usually add value?
I serve on the board of a company focused on mental / behavior health. Technology enables “access” for help at near zero marginal cost, so from that standpoint I suppose it is ever more present. I think its a personal decision if someone wants to utilize an executive coach (or a therapist if clinical assistance is more appropriate).
What I really believe is that both physical and mental health is important for all involved. If you are not fit, it would probably be best to remove yourself (in a manner without surprises), or adjust your role so that you feel comfortably physically / mentally.
How do you solve important conflicts with CEOs, such as lack of alignment on exits, strategy, or just the CEO being in denial about things like performance? Does the resolution begin with a private conversation or with involving other board members in a decision?
My personal view is the CEO is the CEO. If a board no longer trusts the CEO, then the board should professionally start a process (ideally with the CEO’s support) in a transition. If the board trusts the CEO, then what I try to do is optimize to each CEO in a manner custom to her / him. Sometimes that means staying out of her/his way, other times it means being proactive.
Who is the right “messenger” depends on the CEO / Team / Board Members & what the topic is. If you have for example a Comp Committee, the Chair of the Comp Committee can be the voice for the committee most of the time, some with Audit / Risk Committee, Nominations/Governance, etc.
If the committee Chair is doing a good job – super. Each CEO is different.Each company culture is different. Each board member & board culture is different. Once you establish a fiduciary baseline together, then how to get things done tends to be custom to those involved, leveraging helpful primitives like open communication, respect, understanding, etc.
Each company culture is different. Each board member & board culture is different. Once you establish a fiduciary baseline together, then how to get things done tends to be custom to those involved, leveraging helpful primitives like open communication, respect, understanding, etc.
When raising money from LPs, what is the thing you emphasize the most when “selling” the fund? Past returns? Team expertise (domain and/or entrepreneurial expertise)? Unique angle?
The relationship with LPs is a relationship, so “fit” is key. LPs usually appreciate that you say what you are going to do & then do it (ie “no surprises” as the goal). They seem to appreciate regular and professional communication, so if things are going well or not, they are informed.
Clearly everyone is happiest when everyone makes money at the level of risk-reward they were anticipating. However, in the moments where things don’t work out as well, an LP usually appreciates professional communication through the cycle of the relationship.
LPs, GPs, Entrepreneurs – at the end of they day usually can sense “integrity” (level of integrity) – if each person tries to do the right thing, especially under moments of material stress, then business trust forms naturally over all of our careers, at whatever level each of us earn.
Key Lessons from Pete
- Have a “No Surprises” Approach as a VC. Both when dealing with founders and when dealing with prospective/current allocators, predictability is key. Be transparent about goals, about support, about your role, both when things are working out and (especially) when things aren’t going so well and you need to share failures/mistakes;
- Get into business with people with transparency and shared values. Most misalignments between founders and VC GPs occur because the founder doesn’t understand the GP’s motivation and/or the GP doesn’t understand the founder’s situation. The best type of relationship is one in which there is a strong, transparent relationship between both;
- Optimize the CEO with full trust. A board should always back their CEO, and in Pete’s opinion this comes down to maximizing their output and performance as CEO. In terms of communication, the “messenger” for a key problem or issue depends on the situation and board structure, but trust between the CEO and the board is key. If there is no trust, then the CEO needs to either go or rebuild that trust. No third option;