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VC Bill of Rights – Article 6: The right to hold management accountable for building value in a timely and measurable manner February 21, 2010

Posted by Lawrence Lenihan in Uncategorized.

A VC will not view your business as an exercise in your personal fulfillment.  Maybe I put it too directly, but it’s the truth.  Rather than risk losing something in the translation, let’s put it out there and discuss it.

VC’s must hold entrepreneurs accountable for building value because our investors must hold us accountable for the results we deliver for them.  They should – it’s their money!  Therefore, we have to hold you accountable.  No, this is not the definition of s$*t rolling downhill!  It’s not that bad.  Instead, let’s call it a virtuous cycle: if the entrepreneur delivers wonderful results, your VC will deliver wonderful results which means our investors will deliver wonderful results which means our investors will want to reinvest in our follow-on funds which puts us in a perfect position to invest in the next great company you, the entrepreneur, launches!   See – everyone wins!

But, it all starts with accountability.  We have discussed in so many of these prior articles why an agreed set of goals and objectives need to be established.  But once established, the VC and the entrepreneur need to be held accountable for running his/her business and building value.  Goals and objectives are signposts on the road to value creation!

But what happens when the entrepreneur doesn’t hit these goals?  Does that mean that the VC has the right to fire the CEO?  Article 5 that I posted last week says that the VC has the right to replace the CEO if he/she is not getting the job done.  Yes, if you the entrepreneur are not getting the job done, you should be replaced.  In fact, as the largest shareholder (Article 1) you should want to be replaced with someone who can build value and make you a very wealthy and successful founder.  But, not getting the job done is not defined by missing goals and objectives, necessarily.

After 13 years of being a VC and observing literally thousands of companies, I can assure that nothing moves in a straight line except abject failure.  Success has its ups and its downs.  What makes a great CEO is a leader who can navigate these peaks and valleys, making steady progress towards building value in the larger picture.  Frankly, goals and objectives should be used as a means to test theories and hunches about the market, the technology, the team, etc., not as an absolute and irrefutable determinant of whether the company is on track.  Early in a company’s life, establishing the right goals are as difficult as achieving them sometimes!  If the entrepreneur/CEO of every successful company were fired for missing his/her early goals and objectives, there would be many different CEO’s running very large and successful companies today.

Entrepreneurship and starting a company is a process of discovery.  Great entrepreneurs act, learn (and continue to learn more every day), adjust and then execute again.  They set new theories and test them.  They identify opportunities and attack them.  Goals and objectives set defined landmarks around which the entrepreneur and VC can evaluate and discuss where and, more important, why, the company is succeeding or failing.  In fact, why the goal was achieved is as important as why it wasn’t achieved!  What did we learn about the market? Our execution? Our team? Our customers? Our competitors? Our product?  Great entrepreneurs learn, adjust, execute, evaluate, learn, adjust, execute, evaluate,…  Do you get the picture?

So what does “not getting the job done” mean?  To me, it mostly means not learning.  It means not moving the business forward.  It means consistently missing your goals and objectives and not adjusting (or adjusting without thought and insight).  It means excuses rather than reasons.  It means doing the same thing over and over and expecting a different outcome!  We need to hold you accountable for these actions because they detract from value creation.  As the company grows and becomes large, actual goals really matter because we have learned a lot and now we need to build a business and good businesses are able to plan real financial goals and achieve them (top and bottom line).

So yes, you, the entrepreneur, are accountable and we must hold you accountable if, as VC’s, we are to do our job.  We love you, but our love is not unconditional.  If you don’t want to be accountable, don’t take funding from a VC.  If you want unconditional love, buy a puppy!



1. Paul Haley - February 22, 2010

Larry, I literally hear you on the last sentence! I most enjoy how this post reinforces the title of your blog. I would appreciate more of your thoughts on the board/VC’s challenge in guiding versus terminating a CEO struggling with the challenges you enumerate here, perhaps after you’re done with the Bills of Rights. More specifically, how do you assess how much to influence operations versus waiting for abject failure before acting? How active do you think a founder/entrepreneur or CEO should expect the board or VC to be? What are your thoughts on being an active VC? Under what circumstance do you think a VC should be as patient as this post might allow? (Perhaps you should write a book?-)

Lawrence Lenihan - February 27, 2010

Paul this is a great question. i am going to respond in the form of a posting this weekend. Thanks. Full disclosure: Paul is a former CEO of a FirstMark portfolio company. The outcome was not good for anyone. I can’t say it was the finest moment in my career as a venture capitalist, but this situation was a very significant part of the basis for our investment strategy going forward. I reached out to Paul, whom I like and respect enormously despite some very significant past differences, after his post and asked if I could go into some detail here. He kindly agreed. I will also ask Paul to respond with his perspective as well.

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