Category Archives: Management

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September 27, 2013

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Dealing with VCs, Management, Startup Life

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Importance of Connections – The Unexpected Outcome

One of my favorite aspects of both my jobs (VC and Cornell) is making connections with people.  Real, in person connections that last.  I also find that using the connections is satisfying.  But perhaps the biggest reward is when using a connection results in something very unexpected.  Here is an example (and I am keeping names fictitious as this deal is not done yet).

Our fund recently gave a term sheet to a company in what I would call the technology enabled B2C retail space.  Company makes a custom made product that you wear, but the “making” is highly tech focused, specialized and personalized.  The company is quirky in that regard.  Quirky is a good attribute.  It also has the potential to get very big.

So I got permission from the founder of the company (let’s call her Suzie) to share the deal with one of my VC friends at Fund X (let’s call my friend Joe).  I have known Joe for a long time.  Both of us are Cornellians and our Cornell lives intersect professionally.  Anyway, Joe looked at the company’s materials and decided they were strong enough to share with a few other people that he knew had interest in the space.  One of those people is one of the most well-known female angel investors in NYC (let’s call her Jane).  I had no clue that Joe knew Jane.  I thought “Long Shot, but it certainly cannot hurt.”

So Jane gets the material from Joe, meets with Suzie (the company founder), loves what she sees, but more importantly really likes Suzie.  Suzie feeds Jane more information, and we talk about how to “on board” Jane and get her involved in the company as an investor an advisor.

Three weeks later, after a few more meetings between Suzie and Jane, my partner and I get an email from Jane that starts with “Okay…just finished speaking with [Jane]. SHE IS INVESTING!!”

What joy!  Suzie did the hard work, which makes me incredibly happy and validates Suzie’s abilities (always nice to know prior to investment – we have not invested yet).  Jane is known to be an incredibly helpful investor (lots of connections, passion, etc.).  And Suzie is so excited and motivated.  She wrote in the same email “[Jane] really gets what we are doing and believes its a game changer.  Okay…now I need to go jump for joy and burn off some of this extra energy!!”

Back to my point – this whole unexpected outcome resulted from my initial outreach to Joe.  I trusted Suzie enough to introduce her to Joe.  Joe trusted me enough to take the meeting with Suzie and then introduce Suzie to Jane.  Suzie got Jane on board.  And all without LinkedIn, Facebook, Twitter, Tumblr…..whatever…..

Use your personal connections carefully, but use them……the old-fashioned way.

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May 28, 2013

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Board of Directors, Dealing with VCs, Management, Startup Life

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Too Much Communication – NEVER

I have posted about communication often.  Just type “communication” into the search field and see what pops up.  This morning I read Mark Suster’s post called “8 Tips To Get the Most Out of Your Investors and Board”.  It is all about communication with board members (a bunch of whom are often investors).  No surprise – I love what Mark wrote.

I thought it might be helpful to state a few reasons why it is just about impossible to over-communicate with your VCs:

1.  Our VC partners at a firm are constantly asking “what’s going on with XYZ company”.  Frequent communication from the CEO helps us give good answers to our partners.  You should assume that “update” type emails from CEOs are forwarded to partners inside our VC firms.

2.  Limited partners of a VC firm also ask the VCs “what’s going on with XYZ company”.  Nice to be fully loaded with information to give solid answers, even if the company is not doing that well.

3.  Doing inside rounds (which happen frequently) are way easier if the key constituents (board members and investors) are all on the same page.  Inside rounds are often done in pressure filled situations so not having to spend lots of time getting people up to speed is a huge plus for a CEO.

4.  A statement a CEO never wants to hear from a board member is “I did not know that…..”   Frequent updates solve that problem.  And, if a board member says that it is awesome to be able to say back “well, it was in the update email recently sent”.  You might be surprised how much time can be spent (sometimes wasted) dealing with a cranky board member who feels surprised by company developments.

Those are just a few of the reasons off the top of my head.  Hope you had a great long weekend…..

 

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May 1, 2013

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Dealing with VCs, Management

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VCs Get Paid Back First

I read an article this morning in DealBook titled “In Venture Capital Deals, Not Every Founder Will be a Zuckerberg“.  Go ahead and give it a read.  I actually like the Deal Professor very much and think he usually writes good stuff.  But this time he missed a few things.

My first reaction was “no kidding” and that was just to the title of the article.  I hope that does not need much explanation.  Here are a few other thoughts:

1.  The article states “When venture capitalists invest, they typically demand preferred shares that accrue a yearly dividend of about 8 percent. The dividend goes unpaid until the company is sold. In a sale, the original amount and the interest all come due. It must be paid out before the common shares, which are typically held by the founders and other employees.”   What this describes are “cumulative dividends” where the dividends actually accrue over time.  This is RARE in VC deals.  Most deals are done with non-cumulative dividends that are NEVER paid.  Huge difference!

2.  The article also states that “But venture capital investments are structured to ensure that the venture capitalists are paid before founders and employees.”  And to this I think “yeah, that makes sense.”  If the VCs invest say $18 million in a company, and assuming that the employees have been getting paid for their work, then it makes sense that the first $18 million available on a sale transaction would go back to the investors to repay their investment.  It is ONLY once the VC’s liquidation preference is cleared that the common stock held by founders and employees is worth anything.  And I think that makes 100% sense. Yeah, I am a VC so you might think I am biased, but it really does make sense.

The legal case that the Deal Professor writes about is one of the fringe cases where actions by the board of the company may be called into question for breach of fiduciary duty to common stock holders, who, in this case, included founders who had been let go many years prior.  Fiduciary duty law is well settled, and, no, directors cannot approve dilutive financings without regard to common shareholder interests.

It will be interesting to see how this legal case plays out.

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April 26, 2013

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Management, Public Service Announcements

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Cornell Co-Founder Connection

Happy to report that Entrepreneurship@Cornell has partnered with CoFoundersLab to launch Cornell C0-Founder Connection to provide the broad Cornell University community with a free way to find a co-founder/business partner.  A great team is critical to startup success, yet good co-founders/business partners are hard to find.  Cornell is dedicated to helping our entrepreneur community better solve this problem.

Are you looking for a co-founder?  TWO simple steps:

1) Create a FREE entrepreneur profile on Co-Founder Connection.

2) Check out an in-person Co-Founders Wanted Meetup in a city near you.

Whether you’re just starting out with an idea and looking for your first co-founder or you’re two years into a startup and looking for that third or fourth co-founder, use Co-Founder Connection to find that key team member.

The Co-Founder Connection co-founder matching platform is available to the entire Cornell University community, past and present. The best part? Co-Founder Connection plugs into the CoFoundersLab database of thousands of entrepreneurs looking for a co-founder!  The portal also allows extensive search and filter capabilities to narrow the search down to co-founder candidates with specific criteria, such as those people whom have certain skills, are part of specific communities (co-working spaces, accelerators, etc.), and have complementary entrepreneur personalities.

About CoFoundersLab

CoFoundersLab is the largest online community of entrepreneurs looking for a co-founder. CoFoundersLab partners with organizations and universities across the country to provide a co-branded, co-founder matching resource for their communities. Cornell University joins Harvard University, TechStars, Columbia University, New York University and many others as a proud CoFoundersLab partner, dedicated to promoting entrepreneurship and business creation.

Join the Cornell University entrepreneurial community and find your co-founder today with Co-Founder Connection!

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February 27, 2013

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Management, Startup Life

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Control Freak and Control Freak

I had a mini epiphany tonight regarding control freaks.  I realized clearly that there are two types of control freaks.  If you think there are more, perhaps put your thoughts into the comments.

Type 1:  The control freak who is such because he/she is insecure.  Insecure control freaks need to control things because they (i) delegate poorly and/or (ii) need to take credit for things all the time and/or (iii) are unsure of their own ideas so need to control how they are executed and spin things at every turn to look favorable.  I have found that insecure control freaks talk a lot resulting in long meetings (way too long).

Type 2:  The control freak who is such because he/she is tired of dealing with others messing things up.  This type of control freak also delegates poorly until they have a team that can execute really well.  This type of control freak is not quick to trust co-workers to get stuff done right (even when there is no reason not to trust).  This type of control freak typically does not lack security.  Just the opposite.  They are often overly confident, and this can come across negatively or even a bit arrogant.

The funny thing is that I am not even sure why these thoughts on control freaks popped into my head tonight.  Often my posts result from current work-related events.  Not this one.

I have personally fallen into the Type 2 bucket, even recently.  Good to pull yourself out if you can.  Maybe better to hire a team that enables you to do so.  But, I actually like working with Type 2 control freaks because they are not afraid to make decisions and execute.  And they have little tolerance for poor execution.

Regarding Type 1s, I just like to avoid them.