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Entrepreneur Bill of Rights – Article 3: The right to get something in addition to money from your investors January 6, 2010

Posted by Lawrence Lenihan in Uncategorized.

When I joined my first board of directors 14 years ago, I overheard a cynical executive refer to the board as a “flock of seagulls”.  I immediately went to the restroom to look in the mirror to see if my hair had gone completely New Wave, a major faux pas in 1996 (for those of you too young to know what the Hell I am talking about and want to embarrass me by reminding me how old I am, go on youtube and look up flock of seagulls!).  My hair was fine and the other VC’s were bald so why would this executive refer to his board in this manner? It was a board of 4 VC’s, 2 outsiders and had been in place for a while (I had just joined), but as the meeting ground to an end, it began to dawn on me why.

The board meeting was a standard board meeting that began with a reasonably good presentation by the CEO.  One VC asked a good question that the CEO answered. Then, almost in competition, each VC had to ask a question and so on.  They also offered suggestions, exclamations, offers of help and criticisms.  Every item presented was commented on and no opinion, no matter how uninformed, ill-timed, or baseless was left unspoken.  The meeting then adjourned with no firm action plans or follow-ups.  At the next board meeting, it was as if no discussion had ensued at the prior meeting: no actions were followed-up on nor were promises delivered.  It finally dawned on me what the seagull comment meant (this phrase was not as common then as it is now).  Seagulls fly in, land, crap all over the place and then fly off, leaving the owner of whatever object on which they landed to clean up the mess!

I have also sat on a lot of good boards, where management and investors work hard to solve problems, address challenges and work to build value in and out of board meetings.  There is a continuous and ongoing dialog between meetings and the board meetings are focused, have a theme, and are well-planned.  Everyone is held accountable (including board members) and we accomplish a great deal together.

In the VC Bill of Rights – Article One, we talked about the right of the VC to make large returns. To do so, he/she needs to invest at an attractive valuation.  This value is almost always lower than what the entrepreneur views as fair, but the two sides come to agreement because they view that the VC can “add value” to the company beyond what the cash at the agreed valuation would indicate.  The VC has most certainly sold that he/she is a “value-added investor”.  Thus the premise for this Entrepreneur Bill of Rights – Article Three and thus the obligation of the VC to fulfill this obligation by contributing more than opinion.

Funding is a partnership, not performance art.  The board meeting is not for show, but to work through integral issues in the company’s development.  In return for the commitment to enable the VC to make large returns, the company should demand payment in the form of actions that contribute to the success of the company.  Yes, this is the experience and strategic insight of the VC, but do you know what the best form of value-add there is for a start-up? SELL SOMETHING!  Yes, as a VC, go on a sales call. Give the company credibility with your word and your firm’s word as committed partners to both the customer and the company.  Another way to contribute is to get people for the company. Advisors, partners, employees that can make a difference.  These are the types of actions that generate returns for all shareholders and provide the value that is expected and owed in the funding commitment, not irresponsible comments and criticisms that offer no action or result, just like the presents seagulls leave behind…

On the other hand, the entrepreneur has to have the commitment to getting this value.  Don’t be afraid to assign homework to your board.  Give them to-do’s and hold them accountable in the same way you hold your team accountable.  Don’t just sit back and complain about your seagull problem!



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