I am on the board of a non-profit called Launch NY. It is a venture “launching” organization that couples programmatic intense mentoring with potential seed funding. I am passing along news of a new initiative that you might find interesting. Here it is:
Launch NY is working to find more ways to engage the local investor community and connect them with our client startup companies. With nearly 130 co-investors to date in Launch NY portfolio companies who have received funding from the Launch NY Seed Fund, the most active seed fund in NYS, our companies have secured 12x the $1.9MM we have invested. Now even more investors can access exciting startup company investment opportunities from the convenience of their laptop or smartphone, as Launch NY has announced that is launching the beta version of the Investor Network.
The first one hundred accredited investors to sign up for the beta test of the Investor Network by July 15th at no cost, will have access to the inaugural slate of startup companies seeking funding this summer.
- The Investor Network is akin to a digitally administered open angel group, allowing accredited investors to look at deals based on their preferences in sector, stage, and region.
- Investors can then invest in individual companies on a deal by deal basis, with as little as $10,000.
- Launch NY will handle vetting the companies, provide access to their due diligence files, assist in negotiations, and structure the special purpose vehicle (SPV) which will aggregate the participating investors. The investment will appear as one line item on the company’s capitalization table.
- The use of an SPV will allow for accredited investors to benefit from tax incentives for businesses who are located in designated Opportunity Zones.
Launch NY is limiting the beta launch to the first 100 accredited investors, so if you are interested in joining us, please sign up at this link or reach out to Launch NY’s Investment Associate, Alex Killian (firstname.lastname@example.org) and they will be in touch soon with more information.
Sorry for the big gap in posts!
As a bunch of you probably know, James Holzhauer is on a streak to set the record for Jeopardy game show wins. I just read that the show picks back up on May 20th with “live versions” (which are actually taped). I do not watch Jeopardy at all. But, the news stories have caught my eye so I have read a few of them. The other day I came across a print interview that included this question: Would you describe the traditional way of playing “Jeopardy!” as overly risk-averse?
Holzhauer’s answer: “I would definitely say it’s too risk-averse. The funny thing is, my strategy actually minimizes the risk of me losing a game. There’s times in a football game where a team goes for a big TD pass. If you don’t take a risk like that, you’re not going to win. Really, the big risk is never trying anything that looks like a big gamble.”
In case you don’t know, a core part of Holzhauer’s strategy is to go after the $1000 “answers” first so that he builds up a pot to bet when he hits a daily double. This is why he is the fastest money winner in Jeopardy history.
Anyway, I loved his answer as it made me think of many entrepreneurs – they take risk all the time! And guess what, so do VCs when they bet on those entrepreneurs! Risk is a given and taking risks is required.
Happy New Year everyone! I hope you all have had a great holiday season. Quick post just following up to my most recent post on independent board members.
a16z has a podcast series, and one of my CVF partners just sent me this podcast from them on independent board members. Great quick 23 minutes. Have a listen.
Tidbits of value from the a16z podcast:
- Independent member are able to diffuse hidden agendas among investors.
- Independent members are able to provide feedback to CEO by a trusted non-investor.
- Makes the overall board dynamics way better as the relationship between the VCs and CEOs is just different than the relationship between the independent board members and the CEO.
- The reality is that the VCs have to give up board control too once the independents arrive!
- Entrepreneurs don’t like working for others and CEOs always have to work for the investors. The independents make the board function better.
- Being a board member is MUCH different than being a board observer or advisor. Independents can start as observers/advisors but entrepreneurs need independent board members with board power.
Most startups as they mature get better and better people on their boards of directors. In this context, “better and better” means people that can really help the company grow from a strategic and operational perspective. Impartial, independent, outside directors. They are independent from the founders, independent from the management team and independent from investors. You can search “independent director” on Wikipedia if you like. The definition is not a topic of controversy. The terms “independent” and “outside” are used interchangeably. And there is a ton of literature (from blog posts to books) about the value that good independent directors can and should bring to a startup. Here is my take (and trust me, probably nothing I write here is new):
- Balance: independent directors bring balance to a startup board. Often there is inherent tension between professional investors (VCs) and founders. This is unavoidable and happens all the time. I am NOT talking about constant tension. That would be a big problem. I am talking about tension over particular issues (like salary adjustments, stock option grants, strategic direction, etc.). Independent directors will bring balance to whatever the topic is that is causing the tension. Good for the founders and good for the investors. A good outside director will be happy to be in the middle and bring balance.
- Connections and Exits: often independent directors have networks that can be incredibly helpful connecting the startup to others in the industry/sector. Think of top level customer relationships. Think of top level exit discussions. These are just examples. Independent directors are usually compensated (often with equity) so they are motivated to directly help. I suggest looking for people that recently retired from key “company” relationships. Make a list, track them down and recruit.
- Mentorship: Independent directors ideally should be great mentors to the founders, and probably to a lesser extent, the startup’s investors. What better person to bounce an idea off of than an independent director who does NOT hold any purse strings.
- Credibility: Getting a decently well-known (in the sector) independent director can bring lots of credibility to the startup and its team. This is common sense. The benefits of the credibility boost are enormous. Doors open, conversations are easier, business happens.
So, with just these 4 points above (and there are lots more – again, just google “independent director”) you might think that every startup would have at least one independent director! Well:
- Not that easy to find: Good team members, be they management or directors, are not that easy to find. In my experience it can easily take 6 months or more to find the right person. BTW, investors often recommend people to be independent directors. That is fine, but can upset the “balance” function that I explained above. I recommend that the founders source the independent. Sure, the person will ultimately typically need to be mutually agreeable to the lead investor and founders but having the founders source the person strikes the right balance in my opinion.
- Founders are hesitant to find due to control issues: this is unfortunate, but it happens often. Yes, every time the board grows by one person there is inevitable decrease in “founder control” due to voting. Each director gets one vote so the math is simple :)). The key though is that “control” mentality signals insecurity. Insecurity signals a lower chance of having positive high level strategic team building (so team building with the top executives and top board members). Lack of top level strategic team building typically leads to sub-optimal exits. The funny thing is that investors think very highly of founders who build great teams both in management and at the director level. Control mentality gets in the way at both levels as “the best” hires might not be sought out. Anyway, this is a very sensitive topic obviously. But think about the best companies you know and then look at the management teams and boards. The evidence is pretty compelling.
Have a great holiday season!
Entrepreneurship at Cornell (which I run with a great team) just held one of our big annual conferences called Summit. Summit is in NYC. The photo gallery and speaker videos will be posted in about 10 days to the Summit site. We had some fabulous speakers and tried out “real time” audience Q&A with hand held microphones. That actually worked out very well and the speakers seemed to truly enjoy the unscripted questions. Summit is held at the Times Center in midtown Manhattan. The venue auditorium holds 380 and we had over 520 registered. Just like an airline!
One of my favorite speakers of the day was Barry Beck, the co-founder of Blue Mercury. His Q&A was hilarious actually and he really opened up on some of his experiences. Anyway, in his prepared remarks, he commented on the concept of DROOM. I had never heard this acronym, but Barry quickly told us what it means: Don’t Run Out Of Money. Obviously smart advice for any company. Unfortunately though it seems to happen all the time!
An acronym that we use at CVF often is SOM. SOM = shit out of money. Maybe we will start using SOOM intead. Suffice it to say that good DROOM planning will avoid the SOM situation. DROOM planning is one of the CEOs main responsibilities (add to hiring a great team and being a great leader to round out the top 3).
Barry’s acronym will stick with me. I will be using it and passing it along often.