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 should VC know how much effort, time, persistent to put in the ones that are somewhere in the middle?
First of all, I don’t agree with the assumptions behind this question. The ones in the bottom can be totally worth helping, because:
- They can turn out to become billion dollar companies at the end (for example both Apple, Tesla, and Airbnb almost went bankrupt before becoming the amazing successes we all know).
- Even if they end up failing, their struggle is your best occasion as a VC to build a trusting relationship with the founders, whose next ventures may be a B$ company.
As for the most successful ventures, they may completely be worth helping a lot because:
- Even a small added value has a huge impact on the fund, since these ventures have high valuation.
- They are also facing very hard challenges: scaling fast, maintaining the company’s culture and employees motivation while growing, dealing with new competitors, recruit world-class executives, etc…). Being currently in such company (Via Transportation), I can attest that these challenges are definitely not easier than the early stage ones.
Actually, if I had to choose, companies with an average performance would probably be the ones where I would invest less time, because by definition, things move slower for them. These ventures are also in my opinion a great opportunity for VC partners to let their less experimented collaborators take the lead. This happened to me when I worked at Elaia Partners, and it helped me learn a lot about the job.
How do you think VC partners should balance their 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?
I would say that (2) is definitely where I think a VC partner should spend less time, because Principals and Analysts – if properly selected and trained – should be able to do a great job at this. (1) and (3) seem both equally worth a VC’s time, but the good news is that I think there’s one activity that serves both of these goals: networking! A great network is in my opinion one of the most important assets of a VC, and helps both being selected for the best deals, and bring value to the companies already in the portfolio.
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?
Unfortunately, I’m not sure there are so many tricks… A board member has in my opinion a key role to play in the company, but it’s definitely not an easy job.
I think a board member’s first responsibility is to help build the best board, and this is really hard because they need to find brilliant people that can work together. Here again, having a great network is key. Another key skill here is emotional intelligence: as in sport or in management, building a dream team is not just about gathering talented individuals, but also about balancing their personalities and experiences so that they complement each others while still being able to work together. Thankfully, these 2 skills also help on many other parts of the job (sourcing deals, sensing a founding team’s dynamics, etc…).
The second job of a board member is in my opinion to coach entrepreneurs. A very famous example of this is Bill Campbell (who was board director at Apple, and the coach of many famous CEOs of Silicon Valley). He was apparently such a brilliant coach and board member that a book (Trillion Dollar Coach) was written about him (warmly recommended by the way!). One of the key ideas in this book – and probably the best “trick” I can give – is that as a coach, your goal is not to work on finding a solution to a problem, but rather to work on the individuals / team dynamics so that they can figure out the best solutions to ANY problems.
> 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’m quite sure that even the most brilliant and experienced executives can benefit from coaching, but they may need coaches with a good understanding of their industry. On the other hand, since it’s in my opinion part of the board members’ role, it feels kind of wrong to hire external people specifically for this purpose.
How do you think a VC GP should 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?
Basically, I think that as a VC, you should always remember that it is NOT your company. Therefore, there are basically 2 options:
- If you think the current executive team is the best team to lead the company to success (which does not necessarily mean exit!!), then they should have the final word. Of course, you need to coach them, and challenge them on every topic, but at the end of the day, it should be THEIR decision, because THEY will afterwards bear this decision in front of their team, customers, etc…
- If you think the current executive team is not optimal, then make the appropriate change so that it becomes.
I am not sure that this really answers well the question, but I am really convinced that the job of VC is not so much about business strategy, finance and technology, that it is about being able to understand, evaluate and deal with human beings. The most brilliant VCs always have a human-first approach to all the problems they face.
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?
I don’t really feel qualified to answer this question, since I’ve never raised funds from LPs… But a venture fund is like any other business: the partners should define the fund’s purpose, understand their target customers (LPs), define a clear value proposition for them, and be able to express it clearly. I insist on the purpose, because I think the venture business has become very competitive, and that it’s probably not enough anymore to enter this game with a “make profits” purpose. I think VCs must find a deep purpose, that both entrepreneurs and LPs can connect to.
Key Lessons from Sébastien
- Investing in bottom and top companies of your portfolio can yield the higher returns. While companies suffering big crises can overcome them and companies already having great success can be accelerated, it might be the ones with “average” growth that don’t have potential for further growth;
- Trust the senior leadership team or replace them. As a VC, you have to remember it’s the entrepreneur’s company. Either you trust them to make the decisions, and they should have final say, or they shouldn’t be the leadership team in the first place;
- For the board, build a dream team. Building a good board is not just about finding individual stars that can perform. Just like in a sports team, it’s about creating a dream team that can work together, with skills and personalities complementing each other to create the best performing team in the end;