Having taken over four Canadian companies where the board was dominated by VC’s and/or angels I often wish the tables were turned and I had been given the opportunity to choose them. Add to this the hundred or so investor groups I have met and I now have a wish-list for interaction with a dominant investor(s).
As with many things there is a happy balance but the formula for that balance is the trick.
To drive or not to drive?
I have seen both cases. A VC that wants to drive the CEO and others that are hands off. Too much of either of these is not good. My own preference is enlightened advice with a diplomatic, mature and experienced hand - hey, I can wish, right? While younger CEO’s have to be taught to be ruthlessly honest with their boards (and more importantly themselves) and never to over commit, they also have to be driven to look at all the data ... is the business plan really realistic ... how can key elements of it be tested/confirmed ... what risks need a plan and does the plan adequately address the issues ... what is the competition REALLY doing ... are they as weak/strong as we think ... Note to self: never fall too much in love with your own plan and perspective as it blinds you.
This falls apart when the assistance offered is not enlightened ... some VC’s partners, usually with a finance background, think they are experts in business planning and execution because they have seen a series of failures and maybe a few successes. As such hey believe they are experts right down to engineering plans, sales strategies, etc. But what works (or breaks) in one environment, market, opportunity is often not transferrable.
Coach please but trust the CEO to do his/her job or if you are certain, do them and all the stakeholders a favour by replacing them. When possible get a CEO that is not learning on the job. The list of serious, career-ending, company failing mistakes a new CEO can make is pretty long.
Monkey rule #1 (from Waterloo Management) - Feed them or shoot them but never let them starve to death.
To hang in there or bail?
The old maxim for VC’s seemed to be; invest in 10, 8 will crater and 2 will explode. My experience in the Canadian market is that of the 10, a couple were bad ideas from the start because they broke/bent the rules of good due diligence (the management team was not up to the challenge, the market was either not there or unreachable, or there was a better solution available already) and this was caused by lack of relevant business experience on the part of the investor doing the due diligence (Advice - get help evaluating business models, markets, competition, etc.).
Of the 7 or so realistic investments there are indeed one or 2 that will explode but the remainder present a challenge. Sometimes the business plan is valid (recipe for success) but the ingredients (team) or the process (target customers, distribution model) are flawed. Some VC’s bail at the first sign of failure, or worse, try to shrink, downsize, and otherwise negatively ‘help’ the company. Sometimes retrenching works but other times you cannot shrink to a better position. I have seen some VC’s that have the smarts to recommit to the recipe and jump in to crisply fix the ingredients BUT this should happen only if the recipe (business opportunity) continues to make sense and the VC (board) has the smarts to make the right changes… otherwise do everyone a favour and bail. Better to spend your time finding ways to help the 1 or 2 in your portfolio that can really explode ... connect them to marketing information or expertise, sales expertise, relevant recruiting sources, potential partners BUT only do this if you have or can acquire the expertise to help instead of hinder. MUCH too much time is spent caring for investors by CEO in small companies ... be sensitive to the overhead of your ‘help’ but definitely help if you can.
US VC behaviour vs. Canadian
A lot has been written about these comparisons but in my experience there is no magic. US VC’s are typically bigger and busier so they seem to be more committed or make quicker decisions on the smaller investments; because they have bigger fish to fry. Many Canadian VC’s have too much time on their hands to sweat the details of a smaller pool of investments and therefore end up harassing the problem cases in their portfolio. A good dose of ‘make up your mind and move’ is in order. CEO’s are generally pragmatic people. Tell them straight what you’re thinking and get out of their way or get with the board and make a crisp decision about changes or a bail out strategy.
Monkey rule #2 - monkeys that are shot in error magically come back to life
Final advice for VC’s - be bold, be assertive and be decisive but be ready to change course if you see you are wrong.
To rant or not to rant ... that is the question.