Today’s VC post is from Roger Ehrenberg (IA Ventures) titled Letting Go. Roger makes a strong set of points about how a founder/CEO needs to learn how to let go. I have a specific nuance that I see often where I think VCs regularly screw up that I bring up in the comments. I’d encourage you to go take a look and weigh in on the comments – this is a good and important one.
There are two runner up posts – Primum Non Nocere from Fred Wilson (USV) and How to Create an Early-Stage Pitch Deck from Ryan Spoon (Polaris). Both good extra food for thought on this wild card weekend.
Oopsie – we forgot to do the “best VC post of the day” for the last month or two. You might have thought there weren’t any great VC posts, but you’d be wrong. We were just being lazy. As with all good things that start up again on January 1st, we’ll try to get back in the “best VC post of the day” groove.
There weren’t many on 1/1/12 so Firas Raouf’s (Openview) titled What Made Alex Ferguson a Great Manager stood out amidst the silence of the morning of the new year. I didn’t know who Alex Ferguson was until I read the post; he’s the “manager” (CEO) of Manchester United and has been since 1986. Firas summarizes Ferguson’s management principles, as they apply to a CEO of an early stage company.
- Identify yourself with your company brand
- Cultivate every interest group in your company
- Gather information everywhere
- Seek total control, but recognize when you cannot have it
- Don’t let others cause you stress
- Remember that crises blow over
- Always be unsatisfied
Go read What Made Alex Ferguson a Great Manager to get the bullet points for what’s behind this post. Happy new year Firas!
Will Herman has today’s excellent post up titled Prune and Upgrade as You Go. It starts out with a quote from one of the board members from one of his early companies:
“any day, any time, you can fire a canon through the company’s building and not miss the employees taken out in the blast.”
My similar quote – which I’ve used for a long time – is “you can fire 10% of your company anytime and not notice.” The point – while harsh – is an important one. Will covers it very eloquently (and less harshly) in his post.
Question: I am the CEO of a company my board is looking to hire a new CEO, for fund raising purposes, and has identified a candidate. The candidate was in fact referred by a VC, I was asked to interview the candidate and provide feedback. I did this and the interview went fine however I also have a couple of mutual acquaintances and when I followed up with them the feedback was extremely unfavorable. The CEO of the last company he was with cannot speak about it as he agreed as a condition of this person leaving that he would not provide anything other than hire and leave dates. My situation is that I cannot provide any detail to my Board on this as I committed to my friend not to and at the same time I am now very concerned that we might make a poor selection since my Board members are very high on him. As a VC how would you want this handled.
Answer (Brad): I would want you to explain this to me exactly the way you have above. Be clear, direct, and transparent without compromising your friend. Since you are involved in recruiting for a person to replace you as CEO, you should be clear with your board that you are not trying to torpedo a potential candidate, but you are uncomfortable based on the data that you’ve received. A rational board will ask for more details and you should be willing to provide substantiation of “the bad behavior” (whatever it is) – again you should be able to do this without compromising your friend.
The ultimate way this will be handled has to do with your relationship with your board. If it’s a respectful relationship where you have real influence on the outcome of this hire, your direct perspective will be valued. If you are already in a rocky situation with the board and/or the VC who is advocating this person, you will likely come across as defensive. The more data you have, the better.
Question: When you evaluate startups to invest in what are the key qualities and what emphasis do you place on it? Is management as high as 50% or more?
Every young venture capitalist learns several cliches about how important either (a) the team is or (b) the idea is. Unfortunately for the young venture capitalist, these cliches are directly contractor as some wise old VCs are believers that it’s all about the team and others are believers that it’s all about the idea. Such are the paradoxes of life.
Looking back on the investments that I’ve done, it’s clear that a combination of team and idea is key. If the team is weak, that’s a non-starter. If the idea is weak, that’s a non-starter. So – it ends up being a classic 2 x 2 matrix: strong team + strong idea is good; weak team + weak idea is bad; and strong team + weak idea or weak team + strong idea is – well – questionable at best.
The big challenge is determining whether a team or an idea is a strong one. Just because someone has had success doesn’t mean they are good (since I’m feeling cliche-ish tonight “better lucky than good” comes to mind.) The converse is also true – I’ve met plenty of great entrepreneurs with a failure or two under their belt.
The same goes for the idea. Those online pet food stores seemed like a great idea at the time in 1999. And – in the same time frame – “yet another search engine” didn’t seem like such a great idea to lots of other folks (YASE = Google.) Of course, there’s always a lot more to the story – but on the surface it’s not an easy evaluation, which of course is the point.
So – the answer to your question will vary by investor. There are several distinct philosophies as well as numerous investors who probably don’t have a clear set of rules (e.g. I can’t tell you the number of times I’ve heard something like “I always invest in people, but the idea here is so great that we can fix the team later.”) Whenever in doubt, remember the answer is 42.
Fred Wilson and Brad Burnham have a long, thoughtful post up on their Union Square Ventures site titled Founders and Management. In addition to providing a general description of the type of people they like to invest in, they give some very specific examples from their current portfolio. It’s a great view inside Fred and Brad’s heads, but it’s also a very useful framework for entrepreneurs to think about how they’ll be viewed by a VC.