VC Bill of Rights – Article 3: The right to be engaged with your portfolio company to understand and be consulted on strategic issues and options January 8, 2010Posted by Lawrence Lenihan in Uncategorized.
VC’s need to add value (see Entrepreneur Bill of Right Article Three), but they also have a right to be informed. That does not mean that every operational decision needs to be approved by the VC, but it does mean that you cannot expect to do whatever the Hell you want without consulting your investor!
I have seen entrepreneurs who are offended by direct questions at times at board meetings. There are two problems with this situation. First, the entrepreneur has no right to be, assuming that the question was thoughtful and not rude or disrespectful. Remember, you are talking to a fellow owner. The second problem is that both sides made an error in setting expectations during the investment due diligence process because either the entrepreneur or the VC obviously thought the “rules of engagement” would be different. If, as an entrepreneur, you don’t want interaction, don’t take venture money. If, as a VC, you aren’t candid with your prospective entrepreneur founder about what you expect in terms of information and frequency of dialogue, don’t be surprised when you don’t get it.
VC’s don’t (or at least should not) expect to be running your business in tandem with you. But, as investors, we have a fiduciary obligation to OUR investors to protect and grow their investment with us. That means we need to know what is going on in our investments and we need to have some level of input into material decisions that are made. In the end, a good VC knows that we can provide our input and be heard, but the entrepreneur must make the ultimate decision. However, with that decision power comes responsibility and accountability. The buck stops with the CEO and a very, very bad decision that goes against the input of your investors and materially affects the company is typically a career-limiting move for many reasons.
But, Board meetings should not be a “Show and Tell” session where the CEO delivers a state of the nation-type speech and someone reviews the minutes of the last board meeting. As I said in my prior post, good board meetings do show key metrics, management does tell about what they see is going on in the market and the business, but the best meetings are those where critical issues are brought forth and discussed interactively. At the end of the meeting, objectives are set and tasks are assigned that can be measured and evaluated upon completion and people (board members included) are held accountable for delivery of commitments.
Good board meetings result from more than just preparation and a good agenda. The best board meetings occur when there has been consistent dialogue between the VC and the entrepreneur between board meetings, where issues and strategies are surfaced and discussed prior to major decisions having to be made. I hate surprises. Surprises of any kind. Even surprise birthday party type of surprises – yes, I’m that kind of guy! But I really hate surprises that are brought up in board meetings for the first time or, even worse, buried somewhere in board materials. Bad news does not get better through delay or obfuscation. Good, honest, candid dialogue between board meetings keeps everyone informed and engaged and forms the foundation for an relationship of respect, trust and even friendship between the entrepreneur and the VC.