Tim is a budding Venture Capitalist fortunate to have been in a position to personally invest in great leaders of 11 early stage companies; 7 of which have raised at higher valuations for a 93.2% unrealized gain in portfolio since starting in 2017.
Portfolio companies 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?
Even ones that are doing great have asks from investors however I’m not the right person to provide the most value for later stage company needs, so I focus more on the early stage ones. As an angel investor, I don’t consider the bottom not worth helping. I tend to take a more informal advisory role where I connect companies to possible new accounts / customers, connecting to marketing opportunities, talent when they are hiring or outsourcing, activities like pitch deck reviews or simple tasks like sharing their goddamn social media posts. From my perspective, if a company isn’t keeping their investors apprised through monthly or even quarterly updates, then I won’t put much effort towards them as I look at the relationship as more transactional in nature instead of personal.
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 and which do you absolutely have to do yourself?
Do it all by myself. Although I have no principals/analysts to outsource to, I do sometimes bounce investment prospects off of trusted friends and family for additional validation. For building my own initial portfolio, I focused in on businesses where I consider the founders to be friends, sourcing undervalued startups on equity crowdfund sites to offer a sizable investment vs. the couple hundred they tend to get per person and companies that go through some of the most recognized accelerator programs.
For due diligence I spend a bit more time on than sourcing as I like to research industries and teams a lot more thoroughly. This tends to take me a couple weeks until I’m comfortable enough to make the leap. When it comes to helping entrepreneurs, it probably also adds up being a couple of weeks over the span of years. So if anything would say that due diligence and helping entrepreneurs has balanced out with less effort needed for sourcing.
Many angels 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?
Realize first and foremost that they are people; treat them as such. If I’m making an early stage investment, I’m making an investment in the founders and I only benefit when they succeed. With exits averaging 5-7 years, that’s one hell of a journey that I’ll be a part of and I go into it considering them friends.
My background is as a multi-specialist who has had undertaken several entrepreneurial roles, so I try to relate as best I can. Generally speaking I don’t get involved much with members on boards. My role tends to be direct one with the founders and albeit can be a role of influence. Looking forward to seeing and experiencing some of these complexities when a few of my portfolio reach their Series A’s and beyond.
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?
Founders do need a good support system, celebrate their wins with their teams and separately have other ways to unwind. Think first is understanding their state of mind and what factors have contributed to this. External guidance is good because it offers a different perspective and can solve for many of the factors influencing their current situation.
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?
Well I’m probably the worst investor to ask this because for me I tend to tell founders to get their companies profitable, ramp the shit out of them and don’t worry about exit plans. If they do a stellar job then they’ll be courted.
Denial about performance I’m very direct about as well. I’ve recently told a startup that the reason they are struggling to get funding at the valuation is because their sales haven’t increased much over the last year and provided feedback on how to improve this.
If they don’t execute then I’ll also be direct about that. I always look at this as a private conversation to start with. Generally speaking if I have concerns; I’m not the only investor with the same concerns and they’ve probably also heard it from their co-founders & board members. Raising concerns without offering guidance and solutions though isn’t as helpful as it could be.
When raising money from Angels, what is the thing founders should emphasize the most when “selling” the company?
There’s no single answer that’s right here. Someone may have decades of domain experience and another person may be launching something revolutionary where you have to look more so at their transferable skills. Past returns may be a good indication of future success but I probably can’t count the number of great startups would have failed if they weren’t given a shot to succeed.
You should lead with your strengths and then how you are addressing your weaknesses. I’m more interested in vision. Tell me you’ve made one product and I’ll be less impressed than if you can show me a road-map that was excluded from a presentation, even if it’s just a work-in-progress.
Avoid red flags like telling potential investors you don’t have any competition. All of this demonstrates self awareness, awareness of surroundings and overall leadership. In the end though I’d like to make money someday, so do hit up TAM and overall why you are the right team to get a good chunk of it.
Key Lessons from Tim
- When pitching to an investor, avoid the red flags. There are few things that will guarantee you will get investment, but there are many that will guarantee you won’t – red flags like being unrealistic or saying you don’t have competition are right up that alley;
- Regarding issues with founders, be brutally honest and start with a private conversation. Be honest about what is not working, what is not helping the company be investible, and what they need to do to get better. Don’t avoid telling them the hard truths and don’t sugarcoat it;
- In terms of the board, be a friend with the capability to influence. Considering the J-curve length, you will be stuck with these guys from 5-7 years. Treat them as friends and truly believe in them. Think of your influence as a big brother giving guidance, not a tyrant ordering them. Believe in your founders;