Nov 072013

Getting the Most out of Your Investors

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.

  1. 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
  2. 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
  3. 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
  4. 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
  5. 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
  6. 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
  7. 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
  8. 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
  9. 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.

Oct 312013

Selecting Your Investors

Selecting 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.  This is the first one…and Fred’s post on the other side of the topic is here.  Next week, we’ll address the topic of building a successful CEO-VC partnership once it’s established.

If you’re fortunate enough to have built a really strong early stage company, you will find yourself in the position of being able to pick from a number of potential venture investors.  The better your business and the more exciting the space you’re trying to tackle…the more investors you’ll find circling around you.  Here are a few tips for ending up with the best long-term partner as an investor.

  1. Look for VC portfolios that have a lot of “like” companies (B2B, B2C, media, tech, etc.).  One of the strongest points of value that venture investors bring to the table is pattern matching, and you can maximize that by making sure the investor you end up with has seen a multitude of companies like yours
  2. Check references carefully.  Don’t be shy – prospective VCs are checking up on you, and you have every right to do the same with them.  When Fred first invested in Return Path, he gave me a list of every CEO he had ever worked with and said “Call anyone you want on the list.  Some of these guys I worked well with, a couple I fired.  But they’ll all tell you what I’m like to work with.”  First prize is the VC who volunteers this information.  Second prize is the VC who gives it to you when you ask.  A distant third price is the VC who gives you two names and ask for time to prep them ahead of time
  3. Focus on the person first, the firm second.  Having a good venture firm is important.  But at the end of the day, you’re dealing with a person first and foremost.  That’s who will be on your board giving you advice and measuring your performance.  Better to have an A person at a B firm than a B person at an A firm (of course, even better to have an A person at an A firm).  This means two things – selecting a great person to be on your Board, and also making sure you end up with a person who has enough juice within his or her firm to get things done on your behalf with the partnership
  4. Always have a BATNA (Best Alternative to a Negotiated Agreement – a fancy way of saying Plan B).  This is probably the most important piece of advice I can offer.  And this is true of any negotiation, not just a term sheet.  It’s often said that good choices come from good options. Sometimes, you have to walk away from a deal where you’ve invested a lot of time, energy, and emotion.  But as an entrepreneur, you can mitigate the number of times you have to walk away by developing good alternative options to a particular deal. That way, if one option doesn’t pan out as you’d hoped, another very good option is waiting in the wings.  If you negotiate with two or three VCs, you’ll have a great backstop and won’t let the emotional investment in the deal get the best of you.  Yes, you will spend twice to three times the amount of time on the process, but it’s well worth it
  5. Don’t be swayed by promises of help.  I’ve heard VCs say it all.  They’ll help you fill out your management team.  They’ll get you customers.  They’ll help with your back office.  They’re loaded up with value-add.  If venture investor has staffed his or her firm with support personnel who are available free of charge to portfolio companies (this does happen once in a while), then assume your VC will be as helpful as possible, but no more or less helpful than another investor
  6. Handle the negotiation yourself, in person as much as possible.  The best way to get to know someone’s character is to negotiate a deal with him.  This gives you lots of opportunities to look for reasonableness, and to see if he or she is able to focus on the big picture.  The biggest warning sign to look for is someone who says things like “you have to agree on this term, because this is how we always do deals.”  By the way, how you handle yourself in this negotiation is equally important.  The financing is the line of demarcation between you and the VC courting each other, and the VC joining your board and effectively becoming your boss
  7. “Pay up” for quality and for a clean security.  There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become.  The quality of your VC isn’t more important than the quality of your product or your team, but it’s right up there.  But – and this is an important but – you should expect to “pay” for quality in the form of slightly weaker terms (whether valuation or type of security).  Similarly, I’d always sacrifice valuation for a clean security.  Everyone always thinks that price/valuation is the most important thing to maximize in a deal. However, the structure of the security can be much more important in the long run.  Whether the VCs buy 33 percent of your company or 30 percent of your company is much less important than having a capital structure that’s easy for an outsider to understand and want to join

As with all things, there are probably another dozen items that could be added to this list, but it’s a good starting point.  However, your more important role as CEO is to put your company in a position where you can select from a number of high quality investors, so start there!

May 012013

Return Path’s Newest Board Member: Jeff Epstein

Return Path’s Newest Board Member: Jeff Epstein

I’ve written before about how much I love my Board. Well, I’m pleased to announce I have a new reason to love it – today, I’m officially welcoming Jeff Epstein to the Return Path Board of Directors. He is joining an all-star cast that includes Greg Sands, Fred Wilson, Brad Feld, Scott Weiss and Scott Petry.

I first met Jeff back in 2000 when, as CFO of DoubleClick, he and DoubleClick CEO Kevin Ryan agreed to invest in Return Path as our first institutional investor, along with Flatiron Partners.  He is one of the few people who have seen the company grow from its infancy to today.  Jeff has been a formal advisor to the company for more than a year, and he recently agreed to join as a director.

Jeff has all the qualities that make for an awesome board member and he’s already been an influential voice with uncommon insight and an impressive background that complements the rest of our board. As CFO of Oracle Jeff helped guide one of the world’s preeminent technology companies. He’s also served as CFO for large private and public companies including DoubleClick, King World Productions, and Neilsen’s Media Measurement and Information Group, and is a member of the boards of, Kaiser Permanente, Shutterstock, and the Management Board of the Stanford Graduate School of Business. Jeff is currently a partner at Bessemer Venture Partners and a senior advisor at Oak Hill Capital.

Building and managing a board of directors is one of the key functions of a CEO, and the entire Return Path team benefits from a close relationship with great industry leaders. Jeff’s appointment is a perfect example. He’s steered successful organizations through many of the same decisions and challenges that we’re facing. He evaluates issues from multiple points of view – as a senior executive, as a board member, as an investor. And he’s not quiet. On our board, that’s essential. We’re a group of strong personalities—we challenge ideas, we analyze everything, and our views don’t always have to agree.

I’ve said that one secret to running an effective board is to ask for members’ opinions only when you want them. In Jeff’s case I definitely want them. So, on behalf of the board and the entire team at Return Path, Jeff, welcome!

Jul 252012

Post on Return Path and People

Post on Return Path and People

For those readers of OnlyOnce who aren’t also readers of Fred’s AVC blog, Fred invited our SVP People, Angela, to guest post on his site this week as part of his series on HR/People.  Her post is here, and it’s a great encapsulation of a lot of what we do at Return Path from a People perspective.

Oct 072011

Must-Read New Blog

Must-Read New Blog

I’ve talked about Why I Love My Board a few times in the past.  I was reminded at my quarterly Board meeting and dinner this week that it’s a great and unusually strong group, and we’re lucky to have them.  Fred and Brad have both been prolific bloggers for years,and I know many of you follow their blogs closely.  Think of that as getting a taste of the input and wisdom you’d get by having them on your Board.

In a very exciting development, one of my independent directors, Scott Weiss, has now started blogging on the Andreessen-Horowitz platform.  Scott is probably our most outspoken and colorful director (and that’s saying something).  Scott just joined Andreessen-Horowitz as a partner in their fund, so he now a VC, but his experience as an operator both at Hotmail in Internet 1.0 and then at Ironport have been incredibly valuable for me as an entrepreneur, and I expect most of his posts to focus on the entrepreneur’s perspective.

Two of Scott’s first three posts, Looking Bigger and Ridiculously Transparent, are perfect examples of the value I’ve gotten out of my six year relationship with Scott as a Board member.  If you want a taste of what it would be like to have him in your corner…subscribe to his blog!

Nov 092010

Why I Love My Board

Why I Love My Board, Part II

I’ve written a few things about my Board of Directors over the years, some of which I note below.  Part I of this series isn’t particularly useful, though there’s an entertaining link in it to a video of Fred that’s worth looking at if you know or follow him.

Today, we are happy to announce that we are adding a new independent director, Scott Petry, the founder of Postini and now a senior email product leader at Google (read the official press release [here]).  Scott’s a fantastic addition to our already strong Board, and the process of recruiting and adding him has made me reflect a bit on my Board and its strengths and weaknesses, so I thought I’d share a couple of those thoughts here.

I think Return Path has cultivated a very high functioning Board over the years, and I feel very fortunate to have the group that we have.  Here are the top five things I think make our Board special, in no particular order.

  1. We have great individuals on the Board.  Each of our individual Board members — Fred Wilson, Greg Sands, Scott Weiss, Scott Petry, and Brad Feld (now officially an observer), (in addition to me) — could anchor a super strong Board in his own right and have all served on multiple Boards of related companies.  And not only do these guys know their stuff…they do their homework.  They all come to every meeting very well prepared.
  2. The individual Board members are different but have different experiences and personalities that complement each other nicely.  Among the three VCs on the Board, two have operating experience, one as a founder and one in product management.  Among the two industry CEOs, one has more of a business development focus, and the other has deep technical expertise.  Some directors are excitable and a bit knee-jerk, others are more reflective; some are aggressive and others are more conservative; some have extremely colorful metaphors, others are a bit more steeped in traditional pattern recognition.
  3. We have built a great team dynamic that encourages productive conflict.  I assume a lot of rooms full of great directors of different types are so ego-laden that people just talk over each other.  Our group, for whatever reason, doesn’t function that way.  We are engaged and in each others’ faces during meetings, no one is afraid to voice an opinion, and we listen to each other.  Some of this may be the way we spend time together outside of Board rooms, which I wrote about in The Social Aspects of Running a Board. Some is about just making sure to have fun, which I wrote about in The Good, The Board, and The Ugly (Part I, Part II, Part III), I talk about other aspects of running a good Board, including making sure to have fun – that post includes an entertaining picture of now-Twitter CEO Dick Costolo and a few of his friends from his FeedBurner days.
  4. We are deliberate about connecting the Board and the Executive team, and the rest of the company.  We encourage every director to have a direct relationship with every one of my direct reports.  They connect both during and outside of meetings, and they have gotten to know each other well over the years.  This is much more helpful to us than a more traditional “hourglass” structure where all connections go through the CEO.
  5. We run great meetings.  We send out a single, well-organized document several days before the meeting.  Board members do their homework.  We focus on current and future issues more than reporting on historical numbers, and we no longer do any presentations — it’s all discussion (I also wrote about a lot of this here in PowerPointLess).

Welcome to the Return Path family, Scott P – we are delighted to have you on board our Board!