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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!


Entrepreneur Bill of Rights – Article 6: The right to make decisions and run your business February 15, 2010

Posted by Lawrence Lenihan in Uncategorized.
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A company can’t be run by committee and it can be run by its board.  I cannot think of a successful company that was run by its board.  When a company is in that position, it is already in a death spiral and it is really hard to pull the nose up on the plane and save the passengers on board.

After 13 years of being a venture capitalist, my conclusion on what separates a good VC from a bad VC is that good VC knows when NOT to touch.  Anyone can touch and by touch I mean interject an opinion/action or interfere in the functioning of a company.  VC’s do it all the time.  In fact, it is the dark side of taking a VC partner – we interfere in your business!  But a good, experienced VC knows that touching (i.e. interfering) is easy; it’s much harder not to touch!

Why is it hard not to touch?  Because we have to sit back and trust our entrepreneur and his/her team.  As a novice VC back in the day working nervously to ensure that my companies hit their plans, I would constantly check and double check management, sit in on meetings, talk to the management team and other activities like that.  Managing my portfolio companies would always remind me of how my parents must have felt the first time they let me drive their car when I was 16. How they must have wished for one of those cars with an extra steering wheel and set of brakes!  In fact, I think my parents still feel that way when they drive with me, but that’s another story…

But cars with two steering wheels don’t work very well.  In fact, if there were more of them on the road, there would be many, many more accidents.  Why?  Because you can only have one person steering the car at a time and a business is no different!  If you have two or more people steering, you will be amazed at how many brick walls you will hit head on!

But, its scary not being able to steer.  VC’s are Type A personalities who like to be in control.  But to be a successful VC, you have to embrace the lack of control and trust the confidence you have put in the entrepreneur who is running the business.  After all, if you don’t trust him/her, you already screwed-up by writing the check in the first place.

However, to be clear, not touching does not mean abdication.  Equally bad would be a VC who did not engage, was uninformed and out-of-date, and was removed from the operations of the company.  This is simply irresponsible to both your entrepreneur and your investors.  By not touching I mean working with your team, understanding the business, contributing through customer contacts, recruiting employees and providing advice and insight based on tangible (not theoretical!) and practical experience.  But stand back when you have delivered on what you promised.  It is then up to the team.  A good entrepreneur listens and has an active dialog and, in the end, makes his/her decision and implements his/her strategy.  Our role as VC is to offer insight and to hold management accountable.  The more you, the entrepreneur, succeed and deliver, the more we will trust.

Of course, the opposite is true as well.  If you don’t succeed and you don’t deliver, you will lose our trust and confidence.  In these cases we will touch more and more and make the changes to team and strategy needed to deliver a return to the company’s shareholders and our investors.  Not a pleasant truth, but it does happen as an action of last resort.

But given successful results, you have the right to make decisions and run your business.  We VC’s should presume this from the start of our relationship and as you deliver, so will we in the form of trust and freedom.  Who knows, we might even feel so comfortable that we take a little nap in the back seat on one of those wide open stretches, something my parents still won’t do with me to this day!

Article 5: Common Ground February 7, 2010

Posted by Lawrence Lenihan in Uncategorized.
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The discussion on the future of the CEO/entrepreneur’s tenure is one of the most stressful and difficult topics to come up in the relationship between entrepreneurs and their investors.  The solution is communication up front and an objective framework around which to evaluate the performance of the CEO, with a clear understanding by both parties of the consequences of either missing or exceeding these performance expectations.  In addition, ongoing communication and a review of performance has to take place on a regular basis.  We are partners in this together and that is what partners do!

I gave you my preference for investing behind a CEO/entrepreneur who can take the business all the way.  But others might feel that experience would be a better solution.  There is no right answer – I’ve seen it work and fail both ways.  But, if the VC is going to insist on making that change, irrespective of CEO performance, both the entrepreneur and the VC need to be clear on the process for how the new CEO will be selected, the selection criteria and the timing for when a search will begin.  As an entrepreneur, don’t accept funding hoping that the VC will change his/her mind – hope is not a business strategy!  Also, the entrepreneur cannot change his/her mind without concrete and specific reasons and only after discussion with your VC partner.  Doing so falls under my category of “stealing” that I wrote about in one of my earlier posts.

On the other hand, the VC can’t pull a “bait and switch” either for the same reason.  Nor can the VC expect a successful CEO succession process without both sides having established clear business and personal performance metrics for an objective evaluation of the CEO/entrepreneur.

When a VC and an entrepreneur come together and make the decision to join as partners in building the entrepreneur’s business in the beginning, it is a time of excitement and great expectations.  Admittedly, it is really hard to have the conversation to outline the role of the CEO, how he/she will be evaluated and the consequences of not meeting expectations.

As an admission, I have not always done this well.  And even when I have, it is never easy.  But failure to establish performance expectations ahead of time and failure to communicate on an ongoing basis is a clear recipe for disaster.

VC Bill of Rights – Article 5: The right to replace the CEO for not getting the job done February 2, 2010

Posted by Lawrence Lenihan in Uncategorized.
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The last paragraph is the Article 5 of the Entrepreneur Bill of Rights is most important – if you don’t think you should be held accountable for your performance, don’t take any funding!  If the entrepreneur is not getting the job done, it is the responsibility of the VC to find someone who can.

Once you take money from an investor, you take on a moral obligation to do everything possible to generate a return for your investor and your other shareholders.  You do not have a right to lifetime employment.  Of course, the easiest route to lifetime employment is to build value for your shareholders – that is the best way to keep your job!

A VC is a fiduciary for the money his/her Limited Partners invest with him/her.  In addition, the VC is a fiduciary to all the shareholders if he/she sits on the board.  If the CEO is not performing and this lack of performance is damaging the company, the VC and every other board member has a strong fiduciary obligation to remedy the situation by replacing the CEO/entrepreneur if that is what they determine to be the best course of action.  But, the only way this process can happen smoothly, is if a framework has already been established that enables the objective measurement of the CEO’s performance.  If this framework has been established up front, any future decision or discussion on this topic should not be a surprise.

On the other hand, the VC does not have the right to replace the CEO if the CEO is getting the job done.  Not even if Steve Jobs wants to come in and run the company.  Of course, a discussion between the entrepreneur and VC would occur and the entrepreneur might decide to step down, but in my mind, in the end, that is the decision of the entrepreneur alone.

Entrepreneur Bill of Rights – Article 5: The right of the founder to remain CEO February 1, 2010

Posted by Lawrence Lenihan in Uncategorized.
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I am sure that there are entrepreneurs who will read this article and think “of course I have the right to remain the CEO – I’m the damned founder!!!”.  You’re right – you do.  As long as you own 100% of the company.  But once you take a round of funding with VC investors, that right is not so obvious and clear as you originally thought.

This issue is the source of some of the fiercest battles between Entrepreneurs and VCs.  If you don’t solve it before you agree to funding, there will be many problems ahead.

During the due diligence process, “The Question” is always asked by the VC: “Do you see yourself as the long-term CEO of your company?”  I know that someone must have written a secret handbook that is given to entrepreneurs taking money from VCs.  In it, the handbook must advise every entrepreneur that, when asked The Question, you must give “The Answer”: “I am only interested in building the company and generating shareholder returns.  If we can find someone better than I am, I would gladly step aside” (often said in a robotic monotone as you try to remember the exact words the secret handbook told you to say).  I am sure there are entrepreneurs who truly believe The Answer (and we have backed some), but others, while answering truthfully, also believe that the only person better than they are and to whom they might hand over the reins over would be Steve Jobs, and only if the entrepreneur could keep the Chairman title!

VC’s understand this, and in our secret handbook, we are told to ask The Question, knowing that The Answer will come, thereby laying the framework for replacing the CEO with a guy or gal who has “been there and done it” – we have to take you on your word that you will step aside if we find somebody better, right?

So, the danger here is very apparent.  And unless the topic is established in a candid and explicit manner early in the funding discussions, there are going to be problems later.

After 13 years of being a venture capitalist, the conclusion that we at FirstMark Capital have generally come to on this point is that if we don’t think the captain steering the ship can sail the ship to the point of destination, we should go find a new boat!  Replacing any CEO is difficult, but replacing the founder/entrepreneur CEO is akin to performing heart, brain and soul replacement surgery.  Yes, there are several high profile examples where the entrepreneur/CEO is replaced successfully.  For instance, Meg Whitman did a marvelous job at Ebay, professionalizing that business and growing the organization once the business model was established and the leadership requirements of company changed from discovery, growth and innovation to organization and management.  But, frankly, when Ebay needed to innovate and change, they struggled and they lost market share.  Contrast this story to Amazon which has innovated more than any other company out there in many ways (yes, more than Apple!).  Imagine Amazon attempting all it has accomplished without its brain, heart and soul, Jeff Bezos.  In addition, Apple is a great example as well.  Steve Jobs was fired in the mid 80’s after clashes with CEO John Sculley, a CEO “rockstar” (ooh, do I hate that phrase) who was brought in to “professionalize” the business.  Apple succeeded at first and then became lost as its innovative edge was lost.  The board burned through several other CEO’s. When Steve Jobs returned in 1997, the heart, brain and soul returned and, as they say, the rest is history. (P.S. The one of the first thing he did when he returned was to fire the board – how great that must have felt!).

The first step to this discussion needs to be taken by the entrepreneur.  If the CEO/entrepreneur wants to be CEO, he should say so and be clear about it – he has the right anyway.  After all, he is the largest shareholder (or at least should be according the Article One)!

At the same time, a clear and candid discussion needs to take place to establish the framework on which the CEO/entrepreneur’s performance is to be evaluated.  This framework needs to be objective and measurable, yet flexible enough to enable the CEO/entrepreneur to run her business in the manner she believes best and to enable the CEO/entrepreneur to seize unplanned opportunities as they present themselves.

Even as the founder and largest shareholder, the CEO/entrepreneur must be accountable to specific performance expectations.  If you don’t agree with this statement as the CEO/entrepreneur, don’t take an investment from a venture capitalist.  Furthermore, if you as the CEO/entrepreneur are the largest shareholder, it is in your best interest as well to evaluate your performance – if someone else can do the job more successfully, nobody benefits more than you do!

Article Four – Common Ground January 24, 2010

Posted by Lawrence Lenihan in Uncategorized.

The common ground here is fairly straight forward: the VC and the entrepreneur need to engage and agree on mutual expectations PRIOR to signing a termsheet.  Easy advice, but hard to do!  Why?  Because it is against human nature to seek out unpleasantness and disagreement (at least it is against most humans’ nature!).  These are not the most pleasant conversations.  The VC is trying to sell the entrepreneur and vice versa.  In addition, there is love in the air – both sides are really excited about this future relationship, so why do or say anything to spoil it?

If spoiling it is asking for the honest truth, spoil it now, because it will be a lot more painful when it spoils later.

Ask these questions and make sure both sides understand the answers, actions needed and consequences of not achieving:

  • Where and on what is the money going to be spent?
  • What definable and measurable objectives and milestones will be reached as a result of this investment?
  • What will we learn and by when will we learn it?
  • How much future funding will be needed and when will it be needed?  Who will fund it?
  • What happens if the answers we discover are not positive and objectives are not met?
  • How does the company report progress?
  • What is the VC’s commitment if the company meets its expecations?  How can he/she demonstrate that the commitment can be kept?  Does the VC have the authority?  Has the firm given the commitment?  What happens if the VC is not there at the next milestone?
  • At what value will future funding be secured?  Based on what?

These questions seem straightforward, but they’re not.  It is a hard and uncomfortable discussion, but you need to talk about them and not simply hope they are the answers  and commitments that you want, but, rather, they ARE the answers and the commitments you expect.  And, because human minds are frail things that often “misremember”, a confirmatory email is not a bad idea either.  Why not a contract?  You could, I guess.  But my take on it is that unless there is a real contractual commitment (like a future funding at a specific price), there are so many ambiguities, that you would spend months in contract negotiations.  Moreover, these contracts would be difficult to enforce anyway.  If you need somebody to have a contract to fulfill an obligation, you have the wrong partner anyway!

Venture Capitalist Bill of Rights – Article Four: The right not to have your money pissed away! January 17, 2010

Posted by Lawrence Lenihan in Uncategorized.
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Pardon, the coarse language, but I feel strongly about this one.  After 13+ years as a venture capitalist, I semi-jokingly say that I have only one criterion that a management team needs to meet in due diligence: will the CEO and the other execs on his/her team steal from me?!!!  Yes, that is how jaded I have become, but its true.  However, I should add that my definition of stealing is a lot wider than the one you will find in the OED.  For me, stealing includes: stealing (of course, but in the traditional sense), lying, obfuscating, misleading, being financially careless, but most of all, running out of money without accomplishing anything while pretending that you are (i.e. “pissing my money away”).  How is that stealing? You broke a promise to me: you said you would invest my money wisely and, instead, wasted it along with my time.

That does not mean failure is pissing away my money – it isn’t, even though you end up in the same spot.

A CEO we recently backed at FirstMark and whose company we helped start, failed the first time out of the gate with us.  We had backed his company in 1998, right at the start of the final phase of the tech bubble. As with any early stage company, we struggled at first to get the right business model, but he communicated clearly as events developed and what we learned as a result.  He made his board part of the discovery process and we were never surprised at any point.  But, just as we started getting a little traction, the collapse of the tech bubble began and it was clear that we would not grow fast enough to succeed in this very difficult environment.  The company had just signed a $500,000 deal which would have kept everyone employed for a little longer, but would have only postponed the inevitable.  With reality clearly facing him and after consulting the board, the CEO made the decision to wind down the company.  He returned the money to the customer, paid suppliers, gave severance to the employees (he took none), shut the company and had a little left over to give back to his investors.  Before they turned the lights off, his team took the sign off the building, signed it and presented it to him and thanked him for all he had done for them.  This CEO failed, but he pissed away nothing.

On the other hand, we recently sold a company we (FirstMark) had started in our basement for several hundred million dollars.  It was a nice exit, but it could have been nicer.  The CEO we brought-in wasted dollars on questionable strategies and questionable people.  He never achieved his operating plan and was never straightforward on this point, constantly changing goals, forcing his board to review past documents to hold him and management accountable. We fired him and the company got back on track, but we were lucky: this company did not deserve to succeed.  Nevertheless this CEO pissed away our money and the return could have been much higher.

Failure is part of life and it is most certainly part of the life of both a VC and an entrepreneur.  But an entrepreneur pissing away my money is not part of my life and should not be part of yours.  Some of you will point out that the CEO in the latter example was not an “entrepreneur” but, rather, an executive brought in to run the company.  Still, he had enough equity and was brought in early enough (in theory) to be the “entrepreneur” and the company was certainly entrepreneurial.  But, yes, you are right, and this is one of the reasons that now, we will not invest in a company unless we have an entrepreneur who we think can take the company all the way to success (as opposed to having a guy who has “been there, done that” come in and take the CEO position after we invest).

As we discussed in the prior post (Entrepreneur Bill of Rights – Article Four), taking money from an investor creates a moral obligation on the part of the entrepreneur to invest that money wisely to the best of his/her ability to generate a large return on investment for the investor.  When you piss it away, you break this obligation.  And, because you have broken your obligation to me, I no longer have an obligation to back you.  You no longer have a right to expect me to be there for you when you need me.  This is the crux of the VC/Entrepreneur relationship.

So here is my very partial list of actions that constitute “pissing away” my money (feel free to add others!):

  • “Spinning” me
  • Surprising me
  • Being surprised when you really should not have been
  • Failing to establish, failing to measure or constantly changing business objectives
  • Completely ignoring my input and then failing
  • Repeatedly missing launch dates as the product is “finished”
  • Failing to “ask for the order” from customers
  • Tolerating poor performers for too long
  • Hiring people who are not smarter than you
  • Engaging PR with no measurable objective
  • Taking xpensive office space
  • Building-out expensive infrastructure
  • Hiring too many support staff
  • Excessive travel
  • Investing “ahead of the curve” when the “curve” is not established and is very unclear

By the way, this is why the “Entrepreneur Bill of Rights – Article One: You have the right to own 50% or more of your company” is so important: when you and your team own that much of your company, you are actually not pissing away my money – you’re pissing away your money!

Entrepreneur Bill of Rights – Article Four: The right to insist that your investors stand behind you in later rounds January 15, 2010

Posted by Lawrence Lenihan in Uncategorized.
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Funding is a mutual, ongoing, moral obligation.  If you decide to have a VC partner in your company as an entrepreneur or to invest in an entrepreneur’s business as a venture capitalist, thinking otherwise will get you in deep trouble.

When he/she takes funding from an investor, an entrepreneur gives his/her commitment to deploy that funding responsibly in ways that will grow the entrepreneur’s business and generate a large return for the investor (and, of course, the entrepreneur!).  The entrepreneur agrees that he/she will work his/her tush off to grow the business successfully and achieve the milestones that the entrepreneur and venture capitalist discussed prior to funding (you did discuss milestones and expectations before you took investment, didn’t you?).

In return, the venture capitalist gives his/her commitment to work tirelessly on behalf of the company and to add tangible value (see Article Three).  But, the VC also agrees to stand behind the entrepreneur and the entrepreneur’s business both financially and reputationally.

Building a successful company is one of the most exciting, but also, most difficult challenges in business.  Nothing (other than abject failure!) moves in a straight line and while you are battling in the trenches to move two or three steps forward for each step backward, you really don’t want to be spending your time looking over your shoulder wondering if someone has your back.  In the end, that is our job as a VC – we got your back!  In my mind, the visual that always reminds me of this obligation is from the movie Braveheart, when Mel Gibson’s William Wallace commits to luring the English army into battle in a position vulnerable to a cavalry charge from the Scottish nobles who are waiting out of sight, per the agreed plan between Wallace and nobles.  As Wallace succeeds with his commitment, he signals to the nobles to charge-in and wipe out the English.  However, unknown to Wallace, the Scottish nobles changed their mind prior to the battle and sold-out to the English king in return for some land and additional titles.   As Wallace signals for the cavalry charge, the nobles simply wave goodbye to Wallace and ride off home as he and his comrades are left to be wiped out.

This scene is a perfect (if a little poetic and overly-dramatic) metaphor for the relationship between the entrepreneur and the venture capitalist.  Wallace did what he committed to doing and achieved the milestones (getting the British in a vulnerable position) that were agreed.  Moreover, he had established credibility through demonstrated and measurable previous achievement.  He had every right to expect the nobles to be there for him.

VC’s cannot be like the Scottish nobles.  As the entrepreneur fulfils his/her commitments, so should we VC’s.  An entrepreneur should never have to wonder if his/her VC will be there in future fundings if the entrepreneur is fulfilling his/her commitments.  That means putting money and reputation behind the entrepreneur when the entrepreneur needs it.  Future fundings should be reserved and a commitment to being a partner, not just a participant in these fundings are valid expectations on the part of an entrepreneur.

As an aside, this follow-on funding obligation is the biggest difference between a traditional seed investor and a venture capitalist. Seed investors typically participate only in your seed round and there should not be an expectation (unless agreed otherwise) that they will support you in later fundings in a material way.  A VC, on the other hand, is an institutional investor and should be expected to participate and support future funding requirements.  We are not subject to the same financial constraints that govern the actions of individual or even institutional seed investors.  Of course, an angel would stand behind you reputationally, but there is a difference between standing behind you with words and standing behind you with a checkbook and putting money behind the mouth where the words come from*!

* Yes, I despise ending a sentence in a preposition but to do otherwise would detract from the point and make the sentence awkward and clunky.  I write this footnote to spare all of you who delight in pointing out poor sentence construction and errors in grammar from sending me an email!  However, we can certainly argue about the placement of commas if you would like!

Article 3 Common Ground January 8, 2010

Posted by Lawrence Lenihan in Uncategorized.
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The common ground here is very simple and straightforward:  COMMUNICATE!  Communicate during the due diligence process about how the entrepreneur and the VC will communicate and about what types of issues you will communicate.  Communicate regularly between board meetings (this is when the real work happens anyway!).  And, finally communicate during the board meeting.  Interactive is good as long as it is productive, respectful, focused, drives actions (not airtime) and is accountable.  But don’t mistake direct for disrespect.  Sometimes in our quest to be polite and proper, we don’t screw up enough courage to say directly what needs to be said.  If time has been invested in building a strong relationship built on trust and respect, this is not a problem.  But where that relationship is lacking, candid communication sometimes has the opposite effect, unfortunately.

Actions are orders of magnitude more important than words.  Value add means doing something, not just saying something.  And doing something means doing something to help, something that generates value for the company and assists the management in achieving the goals and objectives that were set for the business.  But for a VC, as important as knowing what/when to do something is knowing when not to do anything.  Sometimes our biggest value add is our experience that tells us when to get the Hell out of the way!

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, 2010

Posted by Lawrence Lenihan in Uncategorized.
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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.