A guide for serving on startup boards
The norms in venture capital have changed a lot since I started in the business in the early 1990s: in those days, syndicates were typically smaller, and any investment by a professional venture firm usually was accompanied by a formal role on the startup’s board of directors.
30 years later: round sizes are larger, syndicates have more participants, entrepreneurs wield more power; and as a result, it’s not abnormal for professional venture capitalists to assume a relatively passive role in managing private company investments.
Although I’m a vocal proponent of actively managing venture investments, there is some merit to a…
Sometimes an investment makes more sense than M&A
I’ve personally participated in the creation of more than a dozen corporate venture capital (CVC) programs. In most of the examples I’ve seen, these efforts are championed by corporate development professionals who understand the need to bring external innovation inside the corporation. That typically means that experienced M&A executives are expanding their purview to include minority investments.
As a result, it’s natural to view investing and acquisitions as part of a continuum that ranges from partial control to full control. I believe there’s some validity to this thinking.
On the other hand, venture capital investing is very different from M&A…
Ownership requires stewardship
Venture capital firms come in all shapes, sizes, and cultures. One organization with which I’m familiar started in the early 2000s and was known for celebrating each time it completed a new investment. The firm would throw a lavish, self-congratulatory party for each new startup added to the portfolio. Not surprisingly, this investment firm is no longer in business.
In my opinion, this is because making an investment is the easiest part of the venture capital job. Anyone can find a startup and write a check. Generating a return by growing and exiting an investment is the tough part. …
Opportunities for VCs to address racial inequity
As 2021 begins, it’s difficult not to acknowledge the precarious state of American society: the Covid-19 pandemic continues to grip our country, high unemployment signals underlying challenges to the economy, and our nation remains bitterly divided following a closely contested presidential election. Amidst this backdrop, we continue to grapple with many cultural issues reignited last year, most notably racial equality.
As Alex Nwaka and I wrote in the spring, Touchdown’s team believes that racism and human rights’ abuses are antithetical to our values, as individuals and as a firm. To that end, our entire company has committed to contributing responsibly…
How to assess syndicate partners
As I’ve previously written, entrepreneurship and venture capital can be more challenging during a downturn, but startups that make it through can emerge in a position of strength. While investment capital typically becomes tighter during a recession, startups generally have less competition. As a result, more enduring companies may potentially be founded at times like these according to research from the Kauffman Foundation. It remains to be seen how the current recession will play out in the venture capital ecosystem.
While a recessionary period often brings stress between founders and investors, one of the most challenging aspects of managing through…
Racial Equality & Human Rights
During the past few weeks, we have been reaching out to our friends in the black community to listen, engage, and understand how to start the process of being supportive.
Although we concede that we are not experts on racial equality, we do not believe there is a middle ground on this issue. Racism and human rights abuses are wrong, and we do not think it requires courage to say so. Our challenge is what to do next, so that these are not empty words, but the beginning of sustained action that leads to a more inclusive future.
Seeing our…
They organize innovation efforts
C-suite executives often struggle to make sense out of the variety of innovation options at their disposal. Should the corporation build internally, launch an incubator, partner with an accelerator, start a venture fund, expand an M&A program, or engage in more than one of these activities? The choices can appear complex and overwhelming, even when reduced to basic options like “build, buy, partner, or invest.”
Among these paths, the greatest confusion can come from how to manage external innovation options. For the most part, this means learning how to work with startups. …
Defend your existing responsibilities, then prepare to go on offense to acquire new assets
The recent collapse of the stock market would indicate that we are entering a down economy. Economic complications from the global coronavirus pandemic are already impacting diverse industries like hospitality, construction, entertainment, retail, food service, and many others. In addition, many venture capitalists — including those at Sequoia — are attempting to prepare their portfolio companies for a new reality while claiming credit publicly for detecting a change in the wind.
This is my fourth “down cycle” in the innovation economy. I began my career as a venture capitalist during the recession of the early 1990s, and have managed as…
In a recession, corporations can be even more valuable to startups
Corporate investors have the potential to be among the most valuable participants on a startup’s cap table. In the current COVID-19 environment where traditional fund raising cycles may be extended, a corporate investment that includes more than just cash can be critical. This is because a good strategic investment relationship frequently includes a commercial transaction, or “business development” deal. These relationships have the potential to be just as impactful as cash investments and can help startups survive an economic downturn.
In my role as a corporate investor, I’m often asked what options are available for startups and corporations to work…
A Step-By-Step Guide To Help Make Board Meetings More Effective For Venture-Backed Companies
I’ve lost track of how many board meetings I’ve attended so far in my venture capital career, but I’d estimate it’s somewhere between 500 and 1,000. It’s certainly enough to have formed an impression of what makes effective regular interactions between entrepreneurial management teams and those who are responsible for startup governance.
Board meetings of venture-backed companies vary widely depending on the personalities of everyone involved. Some are formal and disciplined; others are casual and free-wheeling. Some meetings are conducted in an hour, while others may last half a day and feature extensive reports from a variety of operating executives.
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