VCs on the board

A comment from Laurent from the below post made me wonder on the following: how do you lose part of your freedom if you have VCs on your board? Of course I can imagine that there may be some certain situations, but IMO they rather represent exceptions. If one is going to look for fresh outside equity one will certainly have a business plan that should provide the grounds for the future business strategy and its execution. And this business plan will be commonly agreed upon with the newly added shareholder representative.

From my experience the VCs (should) play a dual role which is more important than just being a simple board member - advisor and door opener. I always prefer to partner with experienced people who understand my business fundamentals, share my vision and from whom I could leverage their experience. Moreover, they supposedly have a solid network my business can rely on when in need. I think that those two attributes are necessary ingredients besides the money they put in when investing in my company.

What do you think?

Comments

[John S Flowers]

My experience so far has been that traditional venture money folks are not good board members. I think they make excellent advisors and have deep resources when you need a new executive (or more money), but getting them involved in day-to-day operations or on the Board is problematic unless you are specific about your goals on day one.

VCs don't like bad news and they can be trouble if they don't buy the original vision from the first days. My current company has no traditional venture money on the Board, only private investors and former founders with a successful track record.

This was not an accident.

I've been lucky enough to have great VCs at my last two companies, but nothing beats the wisdom of experience from someone who has actually been in the trenches, building a company. I think Mike Moritz (and a few others) qualify as great VC, but the list is pretty short.

[Pete Barr-Watson]

VC's on your board represent 'the outside'. If, as CEO, your vision is so strong that this doesn't influence you in any way then it's not a problem. Some CEO's however, will feel under the spotlight so to speak. If this is the case, then the presence of the VC board member will undoubtedly affect the decision making process - purely by 'being there'.

It's pretty early for me right now so I'm not very eloquent! But I think the main reason a VC will affect a board is because the CEO is lacking strength of character or vision - which raises fairly important questions itself...

In previous incarnations I've sat on the board of a company that was 25% into a VC. They had someone on the board but it didn't affect us in anyway apart from providing some very real experience that served us well (so much so that we outlived the VC!)

[laurent bervas]

During the "start-up age", having a VC on board was amusing : you received a lot of money (really a lot) with a basic Business Plan. I remember "first Tuesday meetings" where VCs were fighting between themselves to offer you their money.

Things have changed a lot (unfortunately) ..

A VC needs a big return on the investment. There are two main ways :
- the IPO
- the sale of the company.

So when VCs are on board, you have to be ready to sell your company.
That's not my objective. As a CEO I prefer to see the project through.

With VC on board, it's difficult to change your strategy, if the orginal vision isn't working. I agree with john when he says " VCs don't like bad news".
And, if the business plan doen't work, you may loose the control of your company. And it happens often.

[Elizabeth Albrycht]

Laurent - I have to agree with you. I have worked with many startups over the past 10 years, and in the vast majority of the cases where VCs were active on the board, the founders were generally replaced within two years, and the company emerged a different one, either in scope, focus or ownership.

[Pascal]

True Elisabeth. A famous silicon Vally VC told me once that, if they could have done it, the VCs of Oracle and Apple would have replaced Larry Elisson and Steve Job.
Please visit my blog if you can read French. The entire blog is about venture capital, private placement and entrepreneurs.

[Pete Barr-Watson]

isn't replacing the startup execs with more 'experienced' people after the initial phase now considered to be standard (or at least good) practise? The original's often stay around as advisors etc. Once the 'vision' phase moves into reality it makes sense...

[Elizabeth Albrycht]

Oh, it certainly makes sense sometimes to replace the startup executives. That wasn't my point. From the point of view of the startup execs, however, it has to be taken into consideration. Do they want to be pushed aside? Is it their strategy to get out (and start up something else)?

I have seen bringing in a pro CEO done well, but more often it is done badly. In that case, the culture and morale of the company can take a big hit. Of course, employees are usually tied by the stock options, so they stay, but they are miserable at the same time, and certainly not performing at their best.

Furthermore, many of the small companies I work with have a theme of "trying to make a difference" in some way. When the pro comes in, that changes to "making money/slaughtering competition". Again, culture shock ensues. Sometimes, the company doesn't survive it.

In my experience, if the new CEO is just a money person, the transition is going to be rocky. Good leaders will spend time on internal issues such as culture in order to smooth out that transition and, arguably, enable the company to be more successful, faster.

[laurent]

Thanks Elisabeth :)
> if the new CEO is just a money person ...

I agree with Richard Branson philosophy of management :

"I fist take care of my employees.
If they are happy, my customers will be happy.
If my constumers are happy, my share holder will be happy."

I'm not sure VCs are patient enough to build such relations.

With VC on board you are not the master of your personal agenda.

[Elizabeth Albrycht]

When your timeline is the quarter, whether you are a VC-funded small company or a large public company, the patience needed for relationship building is difficult to find.

Seems more like (speaking of sales now, for example) - "Let me take your money now while I can get it, and I will worry about the rest later." But, later never comes....

And when companies treat their CUSTOMERS like that, you can only imagine how their employees are treated.

[laurent bervas]

Thanks elisabeth :)
I think we share some ideas.