Fred Wilson has a great post about getting involved with portfolio companies. There is a bit of another twist to this "active" involvement that you should think about. As you will read, Fred makes a good point about this being generally appreciated and the process of getting your hands dirty makes you a better board member.
What you need to think about is what this process really really means to you both on a personal basis and on a culture basis. I've been actively involved, inside each company that I've invested in. I've taken line jobs for months at a time either as part of the starting strategy or to help out. I don't have anywhere near the experience that Fred has but here are my lessons learned and observations for you.
Shadow CEO problem.
It's a bitch and unless you and your VC have this locked in stone, you will have a shit pile to clean up, promise. To avoid this, interview the CEOs that have come before you i.e. other companies where the VC has money. Make darn sure that the VC isn't out drinking beers with the gang and offering up opinions on pretty much anything. I mean to sound somewhat melodramatic to make the point. I have, shall we say, a rather outgoing personality. If I'm at a trade show doing booth duty and I make some passing comment about a handout, boom, it takes on a life of its own. I can't sit around engaging in 'gossip' or water cooler talk because it gets amplified because of my board/VC position.
You'd think this is a no brainer but it is a sneaky trap. You have to make sure that the VC who rolls up the sleeves isn't creating problems by people thinking he, not you, are actually running the company. I've stepped on it a couple of times but I'm way better now.
This week I turned down two deals because of this exact problem. Those companies were looking for passive money, no board seats or a seat grudgingly with a clear message of "gimmie the coin, sit down, shut up, and enjoy the ride." That's fine. There are guys/gals out there who kick butt as entrepreneurs and need coin with no help. Not my gig. I don't do passive, I'm not a bank, sorry. Before you show up at my door, or any other VC door, figure this out for yourself.
If you don't want the help, adjust accordingly. And don't fake it. Most of us will see through it. We know when there is heavy amounts of BS being laid out just for the sake of getting the check. You hurt yourself, your idea, the staff, etc, by not being honest with your level of tolerance.
Interview all the CEOs of active companies and, if you can, former CEOs. This is so critically important that it can't be stressed enough. I'll clean the kitchen, code (at your own risk), do marketing, booth duty, etc. Basically, I try to invest in companies where I can add serious value and be a net add. I've turned down great investments that have made other VCs good money because I simply wouldn't be adding value. So, ask around, it's in your best interest.
It's like item one in a way. If you have a VC taking a role, define it clearly with a clear exit so people in the company look to you, not the VC as the voice. If they are coming in to learn the business, define a structure, days within each roll, and give that to your staff so they know exactly what's happening. It can be a very very good thing for you staff to brag on the company while the VC takes in the data, learns something and, in the end, has a better relationship with you.
Fred's point about more VCs getting involved is a great one, more should and it should happen up front.
Off to Gnomedex, see you there!
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