Getting the Most out of Your Investors
Fred Wilson has been a venture investor and director in Return Path since 2000, first with Flatiron Partners and then with Union Square Ventures. We’ve been through a lot of wars together. In a couple of weeks, he and I are team-teaching a class in Entrepreneurship at Princeton, and the professor gave us the assignment of writing two pairs of blog posts to tee up discussion with the class. The first two posts were mine on selecting investors and Fred’s on selecting investments. This is my second one…and Fred’s post on the other side of the topic is here.
Once you’ve done a venture financing and the smoke clears, you have to transition the relationship you have with your new investor from the courting phase to building a CEO-Director relationship for the long haul. Here are a few thoughts on how best to do optimize the relationship once it’s established.
- Take onboarding seriously. I always say that the hiring process for new employees doesn’t end when the employee starts…it ends 90 days later after some deliberate onboarding and a two-way review to check in and see how things are going. Adding a new Board member is the same. Onboard him or her with some of the same rigor and materials with which you’d onboard a new executive. Touch base a lot early on. Schedule an in-person 1:1 check-in after a few months to see how things are going
- Give news early and often. CEOs who wait until Board meetings to share all news are missing out on the point of a good director relationship, as well as missing the point of how communications work in the 2010s. This is especially true with bad news. No one likes to get it, but the earlier people hear it, the more they can thoughtfully process it and provide help
- Ask for and give feedback early and often. Though there are certainly some exceptions, venture investors are notoriously bad about giving and receiving feedback. If you set the tone by asking for feedback regularly – then being sure to internalize and act on it and check back in to see if improvements are obvious – you can get even the most reticent director to speak up. And there’s no reason you shouldn’t be providing feedback in near-real time as well. Just because a director is your boss doesn’t mean he or she is meeting your expectations, and it’s a partnership, not a true hierarchical relationship
- Ask for help and give assignments. As a friend of mine says to her kids all the time, You don’t A-S-K, you don’t G-E-T. If Board members don’t have specific things to work on, they either do nothing, or they do things you don’t need help on. Drive the work like you would with any team member
- Foster independent relationships with your team and other directors. The hourglass model – where the CEO sits in between the Board and the management team and filters all dialog and data from one group to the other – is outdated. A director will be much more able to add value to you and to the organization if he or she has an independent point of view as to what’s going on with your team and what other directors are thinking
- Encourage directors to speak their minds. As awful as company politics are, Board politics are worse. Try to create an environment where directors aren’t shy about saying what’s really on their mind. You don’t want to get through a Board meeting and then have someone pull you aside and say “what I really think is…” This means you need to ask them direct questions, not be defensive in your verbal or body-language reaction, and make sure you allow for Executive Sessions at Board meetings
- Hold directors accountable. If you give a Board member an assignment, make sure it gets done on time and the way you asked for it. If you have a director who is sitting in your Board meetings doing email the whole time, politely (and maybe privately, at least the first time) call him out on it. If you don’t hold directors accountable, then just like your staff, they will learn that you don’t really mean what you say
- Use their time wisely. No one likes to waste time – certainly not professional investors who sit on a dozen boards. Get Board materials out early, run productive Board meetings, and while you include some social element like a dinner or outing, make sure even that has the right group and is at the right kind of venue
- Augment the Board with independent directors. Venture directors can be amazingly helpful resources for you and your company. But they typically have limitations as to their range of operating experience. If you want to build a great Board and add some counterweights to your VCs, add one or more independent directors who are experienced business operators with experience serving on Boards as well
Year ago when we both first started blogging, Fred and I wrote a whole series of Venture Cliché and Counter-Cliché posts. Writing these two makes me realize how much fun that was! I’m looking forward to the class at Princeton next week and to seeing the kinds of questions these four posts inspire.