A VC in Vacationland

Seeking the next gen supply chain technology breakthroughs

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  • Managing Start Ups: How do VCs manage their Portfolio Companies?

    There is no one way to manage portfolio companies. In some, we are on the BOD and in almost daily contact with the founders; in others, we are a passive investor getting quarterly updates, and in others somewhere in between.

    Why the difference? Some companies need a lot of help, especially if they are fast growing, hiring people, bringing on new customers, etc. It helps to have an investor in these situations that are able to devote time to assisting the founders in making decisions. It also helps if you have been there before with other companies and know what to do next in a variety of situations.

    In other companies, if we think the founders have all under control, we can be ‘on-call’ and let them run with their companies. We are always ready to help, but if we feel the founders have all under control, then we don’t want to take time away from the business by getting unnecessary updates.

    In all cases, you invest in a team and a business plan. If execution is going well, then let them do their thing, but be ready to jump in if problems arise.

    We admit that we are more trusting than many VCs who insist on daily calls with founders. We are not sure that creates a lot of value in a startup unless requested.

    Here are a few ideas on managing your relations with your portfolio companies:

    1. On-Call–Let them know you are always available for a call, visit, review of a proposed deal or contract, new strategy initiative, etc. If they tend to do things you may not agree with (and not contact you beforehand), then assert more control until you feel comfortable.
    2. Not Intrusive–Many of my fellow VCs are micro managers. In many cases, that may make the CEO/founder more risk adverse/not willing to change that is needed for success.
    3. Make the Plan and Work the Plan–work hard on the plan forward with your founders, agree on a rollout process and get bi-weekly updates on progress. If corrections are needed, repeat.

     

  • Venture Capital: How Do I Decide to Make an Investment?

    Like a lot of due diligence questions, it depends. There are different approaches depending on the level of advancement of the startup. I’ll focus here on what I call ‘Day One’ startups. This is when someone approaches you with an idea but has done no work building anything.

    I have a number of companies like this in my portfolio. To date, they have raised over $70M, so they are successful, at the moment. So how did I decide to invest in a bunch of undergrads from prestigious Boston universities?

    First off, I did not invest for the first year. Too many unknowns and I needed to know the entrepreneurs very well to make sure they were going to go ahead with their plans. I spent the initial year meeting with them almost every week or so to discuss progress, look at business models, discuss go-to-market plans, etc., etc. I wanted to be sure they were all committed to the proposed venture.

    After graduation, we got more serious. I now trusted the teams and knew they were ready to go. All turned down parental offer to continue their education—law schools, MBA’s, you name it. They instead asked the parents to invest in them, by providing ‘room and board’ for a couple of years to live, if they raised enough money to start building their companies. That’s when I invested lean startup funds—enough to start building the technology or start IP processes with new technology. No salaries—everything went into the development processes. After a year of this, both companies raised seed series capital, with my continued participation. Then came Series A & B…

    The bottom line is that I decided to invest when I knew they founders were committed and had structured a business plan that had a good chance of being successful. Making sure the team is smart, has a good idea and is committed are the three keys to Day One investing.

    Obviously, companies that are more advanced require different and more detailed levels of due diligence, but the three keys above are still my base for considering any investment.

  • Managing Start-Ups: You Need to Go Faster Than You Think is Safe

    I heard an interview this morning with Imogene Anne Opton, a 1952 Olympic skier whose Jewish family barely escaped from Nazi Germany in 1938. She and her family were lucky enough to gain asylum in the US. Imogene took up skiing as a way of fitting into her new home in Vermont. When asked many years later what it took to be a successful Olympian (she beat a number of German skiers in the Olympics, but did not medal), she said "You need to go faster than you think is safe".

    The same is true of startups. If you do not push the envelope in all aspects of your company, then you risk mediocrity at best and failure at worst. So how do you go faster than safe and survive?  Here are a few thoughts:

    1. Plan well, but Aggressively–A good founder knows that having the right plan and religiously executing to the plan is the best way to meet performance objectives. Sure, stuff will go wrong, but rapid recovery and re-planning can keep the failures from defeating the entire enterprise. Rigorous monitoring of plan performance objectives and fast corrective actions will keep all on track.
    2. Don't Suffer Mediocrity–Not all people will work out. Those that cannot or do not follow the plan must be rehabilitated of replaced. This sounds cruel and uncaring but your employees know who is producing and who is not. The longer you keep the non-producers around, the more moral and the plan suffers.
    3. Be Fearless–everyone, inside and outside your company, can smell fear. That said, risk taking should not create fear, either in the founder or the company. It is your job as the founder to take calculated and visible risks (defined as ones where you DO understand possible outcomes and probabilities of success) and to motivate everyone to get on board to make them happen. No on else is going to do it…

  • Managing Startups: Innovating at Scale

    Amazon is frequently cited as one of the most successful companies able to innovate at scale. And rightly so, having shipped over a billion packages this holiday season, introduced the Echo, created the super profitable Amazon Web Services and now perhaps directly entering the global logistics market with new software, vehicles and partnerships.

    Innovating at scale is also a trait that startups need to master. Many companies fail to capitalize on early successes by thinking that innovation is a 'one-trick pony' that will carry them to market dominance and riches. Not so.

    Here are a few thoughts on how startups can nurture 'multi-trick pony' strategies like Amazon does:

    • Make innovation a core strategy–Often, startups are more interested in extensions of existing products and services, not creating new ones. Lack of capital is often cited as the reason, even if they are well funded. Sometimes, VC's discourage portfolio companies from extending their reach. Ignore all this and be sure that your strategy includes innovations. If not, your competitors will find those weak spots and exploit them.
    • Build on successes–what's the new, new thing that your customers are looking for? Do you even know? Are they too conservative in thinking so that their suggestions are mostly application extensions? You need to look beyond current customers and wonder why others are not buying your offerings. And you need to introduce new offering that customers, existing or new, never thought they needed.
    • Extend your supply lines–Amazon lets merchants sell in competition with them, and makes money keeping their products in their warehouses and shipping them to customers. Amazon is also going down channel into the logistics world. Where are those opportunities in your world? Going into corollary spaces where existing expertise can be used to enter new markets is a straightforward way to create new products and services, avoiding trying to enter markets without needed capabilities.

     So, what's your New Year's resolution, founders? I hope it is figuring out how to innovate at scale in 2017…

     

  • Managing Start-Ups: Keeping Your Investors Informed

    When I mention this to most founders, they groan and tell me how difficult this can be. It is really frustrating for passive investors to get no updates, in spite of having invested thousands of dollars in your start-up. Give us all a Christmas present and do something about it.

    Over the last few years, a number of start-ups have created tools that can help you keep your investors informed and happy.

    Check them out (and choose one to work with):

    1. Visible – Crystal clear performance insight for startups and their investors.
    2. Compass Monitor – Compass Monitor is a portfolio tracking tool for consultants, advisers and investors. Directly monitor progress via automatic data connections to your portfolio companies.
    3. Invrep – Investor Reporting for Startups and SMEs 
    4. IncMind – Our mission is to provide entrepreneurs with a unique online platform to manage their projects and documents, share company updates and data with key stakeholders, find and keep investors happy, keep control of your business and access a suite of best practice resources for future growth.
    5. TrepScore – TrepScore is an intelligent data management system designed for  entrepreneurs.  Using your data, the system handles many of the tedious tasks that waste your time and mental energy every day.

  • Managing Start-ups: How to Avoid Bad Hiring Decisions

    Maybe it's the tight job market, the cycles of the moon, or perhaps founder inexperience, but my portfolio companies have had multiple cases of bad hires in the last six months. The reasons varied but the results were the same–having to let people go and paying big severance amounts.

    Here's what I learned in the process:

    1. Let your advisers interview top hires–In two cases, the entire hiring process was handled by the CEO, without much outside help. Big mistake. The candidates suitability for the position was flawed in both cases, something that more interviews may have uncovered.

    2. Expectations not well set–In another case, two senior executives were hired from old school large companies. They really did not know how to operate in a fast paced startup world. We needed results in six months, they were thinking two years was the right answer. Not…

    3. Too much equity–In another case, a new hire was given a substantial amount of equity without investor approval. This person, although coming from the startup world, wanted to extend every production deadline by months to get things perfect. With clients ready to sign based on current technology, the match was not made in heaven and the exit cots were substantial.

    4. Poor background checks–CEO's can fall in love with a candidate and get pressured into an offer without looking carefully at a candidate's background and references. It is critical that hiring include not only speaking to the references the candidate provides, but also ones from other people he or she has worked with or for.

    Hiring is never easy, but shortcuts are more costly. With each hire, sit back and ask yourself if you both share the same passion and urgency to make the company successful. Hiring people who don't share your ideas of how to go-to-market can be costly. Note: I'm not saying you should ignore different ideas on how to go to market, just that you all need to be on the same page about what needs to be done in what time frame.

  • Managing Start-Ups: Punching Above Your Weight

    The phrase has its origins from boxing, referring to a fighter who is punching above his weight, fighting an opponent who is heavier and more dominant. Isn't that what startups do everyday, especially those who are disrupting their industry?

    Being a start up means that there are often many existing companies who are already well established in your space. Many of them have perfectly adequate solutions to the problems you are trying to solve. Why do you think you can be better than them?

    Because you have the passion to succeed, to convince customers that your solution is better and that customers operations will perform better than their competitors if they adopt your solutions. So how does an entrepreneur survive?

    1. Never take no for an answer–This applies both to prospective customers and investors. On the customer side, it's going to take many more sales interactions to dislodge incumbent solutions…you have to create a sales plan for target customers that includes these interactions. The same is true when dealing with potential investors.
    2. Not having enough money is no excuse–I have yet to meet a founder who thinks they have enough money to succeed. Being able to set the right priorities with the money you have is the key. Everyone, including your investors, have their own ideas on what your priorities should be. It's up to you to make the hard decisions, based on #3 below.
    3. Visit the future and come back and tell everyone about it–that's your Job #1 as the entrepreneur, understanding where the world is going and designing your solutions to help your clients get there. Don't be seduced into looking at how your competitors succeeded in the past. It's not useful guidance when technology is changing so rapidly.

     

     

  • Managing Startups: Stages of Founder Development

    I often get asked 'what makes a good founder and can they really be the CEO longer term?'

    Here are a few thoughts on what I look for in the stages of founder development:

    • Operations Chops–for real early stage founders, I look for whether they understand their space and have the capability to build the solutions that match customer needs in the space.
    • Organization View–later, as their staff grows, I look for the ability of the founder to look across their organization and see where connectivity needs to happen, like coordinating marketing & sales, or product development & customer support.
    • People View–as the organization matures and the need arises for more senior management to run the company, I look for the founder's ability to mentor and develop new team members into managers.
    • Strategy Skills–as companies evolve, strategies need to morph as the marketplace changes. I look for strategy skills form the founder that will help the company successfully introduce new products and services to their customers.

    The reality is that you can never know up front if a founder has all these skills. Often, you will need to mentor them into the new stages as a board member or investor. If you see resistance to advancing to new stages, then it may be the time to bring in a new CEO.

     

  • Venture Capital: Are Investors Arrogant Today?

    This is a question I answered today, probably for the 4th time. The anonymous person asking said: "They asked for your deck, never read or open it, tells you off or too early."

    Sigh…aside from not commenting on the lack of care in getting the language right, here's my response:

    I ALWAYS am polite to entrepreneurs. I do not ask for decks if the company is outside my investing mission, enterprise IT. I nicely decline the invitation and try and recommend other VC’s to approach. Often, entrepreneur requests to venture firms get shunted to associates, some of whom have not developed necessary skills in communications and public behavior.

    Just to let you know that all investors are not arrogant…we know being an entrepreneur is tough and try to be understanding.

    While I’m at it, here are three rules to keep in mind when contacting VC’s:

    1. We are busy too—I know you really want to get funding…yesterday, but I have 20 portfolio companies I am trying to make successful. Sometime I’m attending BOD meetings, closing rounds, helping hire, etc. etc. I try and respond either quickly, or within a few weeks.
    2. Don’t say let’s do a webinar to explain the deck—See 1. above. I’m busy, but not too busy to give 5 minutes instead of an hour to viewing a deck. If interested in the deck, you’ll get a meeting.
    3. Don’t call me every few weeks if I passed—I often say get some things cleaned up in the deck and we’ll talk later, then send me a deck with a single page added and want to spend another hour discussing it. Be thoughtful and correct all the shortcomings. I’ll look at it again.

  • Venture Capital: Doing Due Diligence

    The amount of Due Diligence (or DD, in VC parlance) done on founders and entrepreneurs varies widely among investment firms. Some do deep Kroll background searches, others a quick Google name check or use a cheapo service like Been Verified, or…do nothing.

    The risk of following the  'do nothing' strategy was highlighted in an article the morning in the local paper, where the City of Biddeford loaned $125,000 to two guys who were under indictment for defaulting on a similar loan in Gardner Maine in 2014. A simple Google search of their names would have yielded their indictments on those charges. They spend the Biddeford money in the usual way–drinking, gambling and eating out, not in financing the new restaurant they had promised the city. They are now in jail, but the money is gone.

    Do such risks exist in the venture capital world? Admittedly, the risks are very small that you are dealing with crooks, but one never knows. Scams are more likely to happen in the crowdfunding world, where entrepreneurs make promises to build products that are physically impossible or cannot live up to stated expectations.

    Regardless, I always Goggle a new founder before I speak with them. You would be surprised what shows up some times. And Been Verified is a easy and inexpensive way to make sure they have no criminal past.