VCs make two common errors, the data shows

Excerpt from the Startup Genome Report — A new framework for understanding why startups succeed:

1. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.

2. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A.)

Notes:
(1) Re. “Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet.” Cf. (i) The real difference between funding rounds and (ii) Why you should bootstrap your startup before raising money.
(2) Re. “Investors who provide hands-on help have little or no effect on the company’s operational performance.” Cf. VC pitfalls to watch for: trying to fix companies.

Why VCs push startups to scale prematurely

Edited excerpt from The most fatal mistake to avoid as a startup, a presentation I gave to a group of startup founders:

1. VCs are not product people, they are momentum investors. They look at their companies which are growing (ie. found product-market fit and are now scaling) and incorrectly pattern match to your company. “My most successful companies invest a lot in customer acquisition, so you should too”. But they don’t realize that those companies found product-market fit, and you haven’t yet. It’s like saying “The most valuable buildings have many floors, so you should be adding floors to this building” — when you haven’t yet finished the foundations.

2. They just invested money in your company, and they want to see you use it. VCs often view a successful investment as one which accelerates a company’s growth, and they want to see you achieve that growth immediately. For example, they’ll ask: “What’s your hiring plan?” But scaling your hiring is one of the key things you shouldn’t be doing before product-market fit.

For these reasons, VCs often add bad pressure on founders to scale prematurely.

Notes:
(1) “Most VCs are not product people” — see VCs are not product managers and Investors, VCs and product advice.
(2) “…they are momemtum investors” — see Most VCs are momentum investors.
(3) VCs can add bad pressure — see For CEOs and VCs: Good pressure or bad pressure?

How to write a monthly report for your investors or manager

Edited excerpt from Why communicate more with your existing investors (and how to do it efficiently) by Armandi Biondi:

There are two key benefits to sending your investors a monthly recap: a) you’ll give them a broad-enough but meaningful-enough perspective on what’s happening, b) you’ll give yourself a forcing function to generate relevant results in a reasonable amount of time. Here’s how:

  • Short & sweet always win.
  • Be numbers-oriented. How did your key metrics perform compared to the last month figure and the overall total? Where do you expect to go a month and a quarter from now? Those are the only things that matter.
  • Think actionable. Write about what you did and how it generated impact on the company, and what you’re going to focus on in the next 4 weeks.
  • Design matters. Use bullet points, divide the topics by area (I use five: product/tech, sales/clients, funds/corporate, press/pr, team/hr), leave some space, order things by priority.
  • Attach some multimedia content. Examples: the screenshot of the Monthly Numbers on your real-time dashboard, mockups of the UI upgrade, videos of the team at the latest relevant event. Let them be part of the excitement.
  • Include cash position and burn-rate. How much money is in the bank, how much did you burn this month,  how long are you covered for?
  • Trigger their attention. Use the subject “IMPORTANT > Monthly Investors Recap”: it will stand out. And open your email with two lines of “TL;DR” underlining the three most important things you want them to know and remember.
  • Ask for what you need right away. Consider them a resource to tap into. Put it on top and write “The single most important thing that we need is…”.

Notes:
(1) In Seeking Alpha, every team leader and “metric owner” writes a monthly report.
(2) We fulfilled much of the advice here with a standard template. The Seeking Alpha manager’s monthly report is a Google doc shared with the whole company. It must not exceed one page. It contains four sections: (i) Key Metrics (ii) Candidly, How Successful Was I This Month? (iii) Top Things To Figure Out (iv) Goals For Next Month.
(3) When Seeking Alpha was a fresh startup, I sent a monthly report to investors. After a while I only shared our quarterly board packet. Question: How frequently should companies update their investors, and does that depend on the stage?

Don’t make decisions in board meetings

In the comments on How we run board meetings at Seeking Alpha, Chang asks: If decisions are not made in board meetings, when are they made? My answer:

I think the relationship between a board of directors and a CEO is the same as the relationship between any manager and their report: you need to empower the person to do their job, and to make decisions. The role of the manager (in this case the board) is to:
— ensure you’ve got the right person in the role, and monitor them to ensure that hasn’t changed;
— agree on goals and metrics, so the person has a clear definition of success;
— provide perspective which the person doesn’t always have when they are in the thick of the job day to day;
— help them think through challenges;
— be supportive — be a good listener, and be sympathetic to the pressure of their job.
None of these things entail decision making, other than the decision to fire someone if they are not right for the role.

Very rarely, a major strategic issue comes up which requires the participation of other stakeholders in the decision. For example, if there’s an offer to acquire the company and the company is trying to decide whether or not to sell, the investors clearly have a direct stake in that decision.

But even then, my guess is that group discussions aren’t very effective. The CEO should speak to every board member individually before the board meeting, and should try to know each person’s viewpoint before the meeting.

Don’t waste your board meetings on updates

Edited excerpt from Peter Fenton, quoted in Sunday Conversation #1: Peter Fenton, Benchmark Capital by Semil Shah:

Great board meetings are focused on asking tough questions and applying critical thinking, as opposed to just updates. I encourage a lot of the entrepreneurs I work with to get rid of the PowerPoint. A typical board meeting will have 30 to 60 PowerPoint slides. So, I ask entrepreneurs to think about that as a Word document. Can you reduce it down to something we can read before the board meeting, so we don’t sit there looking at slides for three hours?

If you think about it structurally, I think there’s something ideal in a board meeting where about a third of it is update. “Here’s how we’re doing, here are the financials, here’s the progress against commitments we’ve made.” The second third should be some meaty topic, you know, competitive landscape, potential product road map, any number of things, but a really meaty discussion which is bringing out the best of the board members. The last third should be an open dialog where the group thinks about the problems of the business.

It’s amazing what happens when you change the dynamic from being one of reporting to a bureaucratic structure to engaging with minds. It’s profoundly different.

Notes:
(1) Peter Fenton suggests here that you should get three things done in a board meeting: updates, examination of a “meaty topic”, and “open dialog” about the problems of the business. Personally, I think that’s too much, and would lead to excessively long board meetings.
(2) We take an extreme approach to board meetings in Seeking Alpha — there are no updates. The updates are in the board letter and time series charts, which we send to the board and expect everyone to read before the meeting. The entire meeting is devoted to discussion, and lasts no longer than three hours.
(3) Here’s exactly how we run board meetings at Seeking Alpha.

The value of great board members

Edited excerpt from Board Members, by Sam Altman:

Board members are very useful in helping founders think big and hire executives. Board members are also a good forcing function to keep the company focused on execution. In my experience, companies without any outsiders on their boards often have less discipline around operational cadence. And board members stick with the company when things really go wrong, in a way that advisors usually don’t.

Board members certainly don’t have to be investors.

As a side note, bad board members are disastrous. You should check references thoroughly on someone before you let them join your board.

The companies that have had the biggest impact and created the most value have had excellent board members (and executives). I don’t believe this is a coincidence.

It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this), but beyond that, it’s important to bring in other people and trust them to help you build the company.

The most unrecognized and under-appreciated way VCs help startups

Edited excerpt (with some wording changes) from VC Value add: Why it probably doesn’t matter, but I try anyway by Charlie O’Donnell:

An experienced founder who had been through lots of rounds as both an entrepreneur and an angel investor told me the following:

“There are maybe two or three VCs on the face of the earth that add any value to the eventual outcome of a company. So there are really just a few criteria that matter: They should do no harm. They should be able to close the round quickly and without too much distraction. You should like them enough to have them on your board. And they should hit your bogey in terms of price.”

So why not just leave it at that and be an open phone line? Why try to add value?

Because starting a company is the hardest thing you’ll ever do (maybe besides having a kid). The least I can do is make you feel like I’ve got your back and I’m there with you along the way.

If not feeling alone gives you any comfort, I’m doing my job.

Notes:
(1) My experience with Seeking Alpha’s investors: “I’ve got your back and I’m there with you along the way” makes a huge difference. That’s because being a founder involves terror, mood swings, and generally feeling bad.
(2) For a more optimistic view of where else VCs can add value — see Where VCs and board members add the most value.
(3) Re. “They should do no harm” — see (i) Do most VCs add negative value?, and (ii) VC pitfalls to watch for: trying to fix companies.

The strengths and weaknesses of VCs

Edited excerpt from “Did you learn anything useful in VC?” by Sarah Tavel:

The most common question I get is “Did you learn anything actually useful in VC?”

Yes.

1. You learn how to ask the right questions. VCs spend a huge amount of their time asking questions, and thus learn the craft of asking the right questions.

2. You learn how to read people. As a VC, you’re constantly meeting founders and building your pattern recognition for reading people.

3. You learn how to learn. In VC, you’re constantly ramping up in a new area. Each company you evaluate brings with it its own ecosystem that you need to understand. Similarly, trends in the tech ecosystem turnover quickly.

There’s a flipside to these three though:

1. In startups, you’ve got to answer the questions. As a VC, my muscle for asking questions was a lot stronger than my muscle for answering them.

2. You don’t learn how to read an organization. VC firms tend to be smaller partnerships. People who have come from larger companies definitely have a leg up in this regard.

3. You’re not specialized. VCs rarely specialize. Sure – I knew the e-commerce ecosystem cold, but that doesn’t compare to spending several years working at Google.

Notes:
(1) Sarah’s post is about what she learned as a VC. But entrepreneurs can read it as a description of the strengths and weaknesses of VCs.
(2) Cf. Investors, VCs and product advice.

VC pitfalls to watch for: chasing fashionable verticals

From Five Mistakes New VCs Make (& How I Tried to Avoid Them) by Hunter Walk:

New VCs are vulnerable to fashionable verticals. What are some motivations to chase the market? Groupthink certainly; high volume of new companies in these spaces; perceived appetite for these companies from downstream investors mean you can get some quick markups over next 12 months.

Remember a few years ago when every VC seemed to want to back their own “something sent to you each month in a box” companies?

Notes:
(1) This isn’t just a risk for new investments. VCs also need to resist recommending that their existing portfolio companies chase the shiny new thing, instead of staying focused on their core opportunity.
(2) One of the ways VCs can add meaningful value is by sharing what’s working from their other startups. The challenge is to share what’s working elsewhere without chasing fashionable verticals, and without making recommendations that ignore a company’s unique DNA.

VC pitfalls to watch for: trying to fix companies

Edited excerpt from Five Mistakes New VCs Make (& How I Tried to Avoid Them) by Hunter Walk:

VC mistake — imagining you can “fix” a team, product or market: With no exceptions, my worst bets were in companies where I either relied upon social proof or where there was a gap between founder vision and ability to execute that I thought investors/advisors could bridge.

Notes:
(1) The same point holds from the entrepreneur’s perspective: you don’t want investors who think their role is to enlighten you or fix your company.
(2) If they can’t fix a team, product or market, how do great VCs add value? They (i) provide concrete help with hiring, fundraising, and intros; (ii) encourage you to figure things out without pressuring you to expand prematurely; (iii) share what’s working from their other startups; (iv) ask great questions that you wouldn’t otherwise have thought about; and (v) focus on real metrics rather than buzz among other VCs and the media.

Can trust between VCs and founders outweigh conflicts of interest?

From The trust thing by Roy Bahat:

The investor-founder relationship is, by nature, out of balance. Founders are devoted to the most important (work) project of their lives; investors have the luxury of more than one such project at a time. Founders can do incredibly well personally, under circumstances where the investors may do fine though not great. Founders know much more about their company, investors know a little more about what’s happening elsewhere in the world (maybe).

The ingredient in the startup stew that balances the potential bitterness of these differences: trust. When founders believe their investors will do right by them, even when it may be against their narrow, short-term self interest, and investors believe the same about founders, it’s magic.

Notes:
(1)  Cf. Conflicts of interest between startups and VCs.
(2) Cf. How to build trust with VCs.

Does your VC run their business the way you run yours?

Every VC and entrepreneur knows that rapid feedback loops, ideally in the form of daily or weekly metrics, are the key to success. Yet many VCs seem to lack feedback loops in their own businesses. Which makes Andreessen Horowitz interesting — it sends the following questions to entrepreneurs who have met with the firm:

– Thinking back to when we set up your meeting with the Deal Team, how satisfied were you with the time it took to get that first meeting?
– Were you treated with respect during the pitch meeting? In other words, did the Partner take time to understand your business and ask questions in a thoughtful manner?
– After you met with us, how did you receive a follow-up response?
– Did you get a follow-up response when it was promised?
– How would you rate the clarity, transparency and usefulness of the response itself?
– How did your experience at Andreessen Horowitz compare to that with other VC firms?
– How likely are you to approach us for future fundraising?
– How likely are you to recommend Andreessen Horowitz to a friend or colleague?
– How could we have made this a better experience for you as an entrepreneur?

The questions are great, and they try to make them easy to answer (most have clickable answers on a scale of 1-5 or a simple drop-down). And yet… I suspect this survey gets a low response rate. How would you redesign this to get a higher response rate?

Where investors add most value — one VC’s perspective

From The investor’s role in a founder’s three key priorities by Boris Wertz:

It’s often said that a CEO should focus on three key things: Do I have the right people on the team? Are those people working on the right thing? And is there enough cash in the bank to keep the lights on? The right investor should help a founder with all three of those questions:

1. Do I have the right people on the team? The best investors are instrumental in helping founders recruit the perfect team. For key positions, they should jump in and pitch a candidate to join a portfolio company. Secondly, investors should spend enough time discussing hiring priorities with the CEO, as well as help craft target profiles for senior-level hires.

2. Is the team working on the right things? An investor should serve as a critical sounding board during strategy discussions… In those discussions, the best investors are great listeners and rather ask the right questions than provide all of the answers.

3.  Is there enough cash to keep the lights on? Great investors have a large network to pull from and make very specific introductions.

How to build trust with VCs

Jason Lemkin, answering the question How many hours per week does a VC expect startup founders to work?:

Investing millions of dollars is a big people risk, in early-stage start-ups.  Especially if you didn’t know the founders before the fundraising. As a VC maybe I get 3 weeks to get to know you before a term sheet some times, then give you $1-$2-$4m dollars — where is the time to build trust? There isn’t. So what is important is not the hours worked, but the signals that you are doing everything possible to win:

Email responsiveness. Most great CEO respond to key emails with shocking alacrity. If you aren’t responsive to early-stage VCs, that can create huge anxiety. Don’t wait a week or whatever to respond, even if you have other stuff that seems more important to do.

Ethical lapses. You’d be surprised how many founders treat the company’s money as their own. They “borrow” funds, take nutty vacations on thecompany’s dime, etc. Not most, of course.  But to be clear — more often than you’d think.

Listening. I know VCs sometimes give you terrible advice. But if you don’t at least listen, it creates anxiety that there is no trust.

Team drama. Is the team getting along? If they are working long hours together, at least that’s a sign they are working well together. The quickest path to Death in a start-up is a very smart but disfunctional founding team.

Quick comment: I wonder if exactly the same advice holds employees trying to build trust with their managers.

Why entrepreneurs should care what VCs think

In Should Gatekeepers Be Bypassed Or Embraced?, Cal Newport challenges the sentiment that gatekeepers, such as book editors, admissions officers, venture capitalists, and prestigious academic journals, are “obstructing your quest to do interesting and valuable things”:

I understand this sentiment: this is a heady time when lots of innovation is happening in lots of fields.

But…

In my career to date in both academia and publishing, I’ve found that traditional gatekeepers play a crucial — and hard to replicate — role that anyone interested in creative work should not be quick to ignore.

Gatekeepers, it turns out, are really good at two things: (1) assessing value in their field; and (2) providing ruthlessly honest feedback on this value (usually in terms of a swift rejection if something falls short).

Students of deliberate practice should immediately recognize the congruence between this function and that of a good coach. I’m arguing, in other words, that gatekeepers can be used to help push your creative skills to new levels.

For CEOs and VCs: Good pressure or bad pressure?

From Sean Ellis:

I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself… Every time I feel myself getting tense, I now remind myself to loosen up and immediately feel my creative problem solving abilities return.

While self-induced pressure is common in startups, pressure can also be applied externally by the Board (or the CEO to the rest of the team). Most leaders don’t realize how counterproductive this can be in a startup. It is OK to apply pressure for better execution of things that have been figured out, but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns.

Board packet — why we send a letter instead of slides

I stopped using a PowerPoint for our board packet a while ago. It was too easy to make minor updates to last quarter’s slides, leading to formulaic results. So instead, I now provide two Google docs to the board, which I share with the whole company:

1. A comprehensive set of time series charts. Time series charts display trends much more clearly than this quarter’s number compared to last quarter and the same quarter a year earlier. I divide the charts into thematic sections, with each chart numbered so it can be referenced.

2. A letter covering what happened during the quarter, our focus for next quarter, and our strategic position. The letter is 3-5 pages long, and references the time series charts. I keep all our board letters in a single Google doc (newest at the top), making it easy to compare this quarter’s letter to the letters from the previous quarters.

Writing the board letter take time. But it’s worthwhile, because it forces me to take a fresh look at our business each quarter and articulate my conclusions. And there’s another benefit of a letter versus a slide deck: you can’t read a letter out loud during a board meeting, so everyone reads it in advance and we devote the board meeting to real discussion.

Do most VCs add negative value?

From Floodgate managing partner Mike Maples:

Question: Was Vinod Khosla right when he claimed that 70% of VCs add negative value when they advise companies?

MM: The problem for a lot of VCs is they sometimes feel inadequate when they think that their primary skill is “picking.” Or even “just” being a company advocate or sounding board.  Many went to great schools and have achieved great success before they became investors. Some were even awesome founders who created companies that went public and were legendary. VCs want to think they are “company builders”, not just investors.

Sometimes, in their quest to feel more successful they just die to show their “value add”. In so doing they sometimes subtract value because they create unhealthy co-dependencies with the companies they work with. And they offer “advice” that cannot possibly be well-informed enough to be helpful because they aren’t there enough to see what the company is really facing on the front lines.

I have seen many board meetings where the founder engages with such “advice” — not because the founder thinks it’s valuable, but because the founder views the day of the board meeting as a “sunk cost”….a requirement of the job that comes with raising money.

…I think that understanding where you add value vs. not is one of the most important aspects of succeeding in the [VC] business.

Notes:
(1) Being aware of where you add value vs. not isn’t just a requirement for VCs — it’s true for everyone.
(2) Having clarity myself about where each board member adds value vs. not has significantly helped me get the most out of Seeking Alpha’s (excellent) board.

Conflicts of interest between startups and VCs

I’ve been lucky to have superb VCs invest in Seeking Alpha. They’ve brought us many things, including candidates for senior positions, help with fundraising, and bus dev introductions. One of the things that’s helped me to maximize my relationship with them is understanding when our interests diverge. Here are two examples:

  1. Different levels of risk aversion. VCs have a portfolio of companies. To tip the returns of an entire fund, they need big wins. So it’s in their interest to push their portfolio companies to swing for the fences, even if that means raising the risk of failure. If it works but you need more capital, they’ll be happy to invest more. If you fail and run out of money, they’ll pull the plug. In contrast, founder and employees don’t have a portfolio of companies or a portfolio of jobs. This is your only one. So your evaluation of outsized risks is different.
  2. Different value placed on PR. VCs rightly care about their brand, which is strongly impacted by association with successful companies with “buzz”. For VCs, “buzz” may mean coverage on sites read by entrepreneurs and other VCs. This helps VCs attract deal flow, LP participation in follow on funds, and perhaps provides peer validation. But for entrepreneurs, you may not care because (1) your customers and potential customers might not read those sites, (2) even if they do, there may be far more cost effective ways of reaching them, and (3) you might fall into the trap of the spotlight effect.

What the best VCs and entrepreneurs should expect from each other

From an interview with Mark Andreessen:

There’s a whole bunch of theories on how to build tech companies. A key one that we have is that it’s a long-term exercise. There’s nothing short-term about it. There’s nothing transactional about it.

It’s finding the very, very special entrepreneurs and business builders. It’s backing them to the hilt, and it’s backing them through very difficult times. Every new company goes through tremendous challenges. Ask any entrepreneur in the Valley how their company’s going. “Oh, it’s going great. Everything’s fine.” But internally they’re always about to throw up. Because there’s always something going wrong. Some key employee is about to quit, or some new competitor has popped up, or some product has slipped, or some customer is suing you, or some crazy thing is happening. There’s nothing easy about building a business.

And then you have to have a long time horizon. The great franchises get built over 10, 15, and 20 years. And the really great franchises like Hewlett-Packard, IBM, Intel, Cisco, and Oracle get built over 40 or 50 years. We just look at the history of the industry, and the companies that have had all the impact are the ones that had this kind of orientation. They had a founder, typically the founder running the company for decades, typically a real commitment to innovation, to R&D, which requires a very long time horizon. And they either had supportive investors, or they figured out how to force the nonsupportive ones out. And so we think there is a model for how to do this.

…One of the things we try really hard to do is only back founders who have a long-term mentality. If they come in and have a slide that says, “Exit strategy, M&A,” whatever, we don’t invest.

How to get value out of your board between meetings

From an article by Red Hat CEO Jim Whitehurst:

I often have valuable interactions at formal meetings, but where I really get value is when I can call a board member for help with an issue. Maybe I have an HR issue, and one member is particularly strong with employee relations. Or maybe it’s a tech issue, and another member is perfect for that discussion.

Collectively your board is a resource, but the individuals are also resources. One-to-one and two-to-one discussions are often where you can really gain knowledge and value… Try to interact three times as much with your board outside of the formal meetings as you do during formal meetings.

Similar thoughts from Fred Wilson:

Once you’ve signed the documents and started working together, my number one suggestion is frequent face to face communication. If you can’t do face to face, then I suggest hangouts or skype. And do it regularly. Make it a routine. I have breakfast every two weeks with quite a few of the entrepreneurs I work with. For those who get up late, we do afternoon meetings or hangouts.

Note how he fits himself into the entrepreneur’s schedule. Impressive.

Where VCs and board members add the most value

From Scott Weiss:

Being on a board is not just about showing up for the meetings. A board member needs to materially contribute to the success of the business. This includes making numerous introductions to potential customers, partners and employee candidates. This is in addition to being available to interview/sell employee candidates, coach management team members, speak at sales kickoffs or just about anything reasonable that a CEO asks you to do to help the business.

Notes:
(1) In my experience, Seeking Alpha’s board members have added most value in three areas: (i) helping us hire great people, (ii) introducing us to business partners, and (iii) helping us raise money by enthusiastically introducing us to other investors.
(2) For example, Michael Eisenberg (partner with Benchmark who recently launched his own fund Aleph VC) just found a key person for us.

How to stop VCs’ best practices becoming damaging cookie-cutter solutions

One of the advantages of having great VCs on your board is that they recommend best practices — what’s working — from their other successful portfolio companies.

But managing a company may be no different from managing people. If one of the two factors that determine individuals’ success is Do you get to do what you are best at every day?, then perhaps the key to the success of your company is Are you focusing on what you’re best at? Your company has unique culture, abilities, strengths and weaknesses, and will win in its own way. And trying to mimic what’s made other companies successful can be particularly damaging if it means spending your time on what you don’t enjoy and aren’t good at.

I recently chatted with a VC who said Seeking Alpha would top out at a two or three hundred million dollar valuation, but would never be worth a billion dollars or more. When I asked why, he said “Because you don’t do any buzz-generating PR, and if you were committed to massive success you’d move to New York.”

But being great at PR and doing meetings in NYC are not what we’re uniquely good at. (Much of a company’s DNA comes from its founder, and I’m an introvert.) We’ve built the largest buy-side research platform, with millions of readers and subscribers and massive brand recognition among investors, without doing any PR and without being in New York. It’s not our way.

It’s fine to take from what’s working elsewhere, but you have to filter and adapt it to your own unique DNA.

Why celebrating wins is so hard, but so important

From Jason Lemkin’s Quora answers:

What’s it like to be a founder/CEO? 

You won’t be able to really appreciate your successes because you will be so obsessed with the next hill and doing what it takes to get to the next level… The hardest part about being a founder is not feeling what is good, what is working.  Even if you can see it — what’s working — you often don’t really feel it.  There’s too much to do.  It’s too hard.  The odds are too tough.  It’s easy to be a critic in general.  It’s even easier to be self-critical when you know everything that isn’t working better than anyone else.

How can investors/board members add most value?

Help You Understand Where, When and Why You Are Doing Well.  I find this is a rare trait in VCs (or board member) … but it’s immensely valuable when you can get it, especially in things like SaaS where growth takes time. It’s easy to be a critic.  But the Great VCs can tell you, from experience, from similar company, when you are actually doing well — and why.  This can help you understand when to Double Down.  Sometimes criticism helps a founder, but usually, almost always, they are well ahead of you here. What most founders really need and don’t get enough of is objective feedback into what is working — regularly.

What’s the best piece of advice you’ve ever been given? 

Celebrate Your Victories – Properly.  For Real. Doing a start-up is so hard, it takes so many pieces, so many victories, over such an extended period of time … it’s so tempting to almost mechanically acknowledge a great milestone, and move on to the pie-eating contest the next day. If you don’t find a way to celebrate your victories and your milestones of pre-success and success … it won’t be any fun.  At all.

How we run board meetings at Seeking Alpha

Before the meeting

  1. Invite input — ask the board members before the meeting for their wish list of discussion topics for the meeting and board packet.
  2. Send out the board packet early — to allow everyone to read it in advance.
  3. No powerpoint in the board packet — because it isn’t conducive to rigorous analysis. Instead, I write a letter which references a comprehensive set of  time-series charts.
  4. Be transparent — share the board packet with the whole company before sending it to board members, and ask for comments. (We use Google docs.)

The meeting itself

  1. No dial-ins — because it kills the conversation. If someone can’t attend, I’ll call them the following week to update them.
  2. Don’t go through the board materials during the meeting — we assume everyone read them in advance.
  3. No texting or emailing during the meeting — so we provide a break for people to make calls or email.
  4. Never make decisions during the board meeting — group dynamics are unpredictable and an unreliable decision making mechanism.

VCs aren’t product managers

Fred Wilson recounts:

In the early days of Tumblr, I used to bug David Karp, the founder and CEO of the Company, about comments… I wanted to be able to comment on other tumblogs and the vast majority of them had no comments because Tumblr did not support them natively. I was fairly persistent in my argument. But David held firm… Eventually, I gave up and moved on to pestering some other entrepreneur about something I thought they should do with their product.

This is tricky territory for VCs and entrepreneurs. Because most of the time the entrepreneur will have a better feel for their product vision than the VC will. But there are times when what the entrepreneur is doing is not working and the VC will have to figure out how to get the entrepreneur to see that.

Notes:
(1) Is this really an issue of “sometimes the VC is right, sometimes wrong”? I don’t think so. Good VCs actively use their companies’ products, so they’ll have opinions. But VCs usually aren’t great product people, due to the innate personality differences of the most successful VCs and product managers.  So VCs’ opinions about product shouldn’t have “board member” weight, but should be treated with the same weight as feedback from other committed users.
(2) If the VC thinks the company has a real product problem, she should address that as an HR issue to be discussed with the CEO. Is the person leading the product team good enough?
(3) This is a good example of a situation where you need to recognize the dividing line between your core competencies and the areas in which you have opinions but no competitive advantage.

Asking your VCs questions

It struck me after our last board meeting how few questions the participants asked each other. (And by questions, I don’t mean “Why don’t you…”.)  So a week later, thinking about Mark Suster’s Asking Questions More Effectively, I sent our board members 5 questions:

  1. What was your overall reaction to our board meeting?
  2. What are the biggest factors holding us back?
  3. What blind spots (if any) do you think we have as a company?
  4. What is your top piece of advice for us?
  5. How do you think you can add the most value to SA between now and the next board meeting?

The answers were superb (thank you, guys). But it shocked me how their views weren’t already clear to me after a two hour board meeting. I wasn’t asking the right questions, and wasn’t listening enough. I wonder how many other founder CEOs have the same experience.