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19

Nov

2013

Entrepreneur's Corner: Your Board Can Suck or It Can Be Great — It’s Up to You PDF Print E-mail
Written by Global Entrepreneurship Week   
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Guest blog post by

Adam Marcus

Open View Venture Partners

It’s no secret that many CEOs aren’t big fans of their BODs, which they see more as distractions than sources of value.

Even seasoned CEOs who have managed to assemble a valuable team of advisors and mentors sometimes struggle with board management. They’re not sure how often to communicate with them, how involved they should allow board members to be, or in which areas the board could provide the most value.

So are boards as useless as some CEOs think they are, or does the CEO-BOD disconnect have more to do with the fact that some entrepreneurs simply don’t understand how to interact with and gain leverage from their board?

I tend to think it’s the latter. Ultimately, the value you glean from your board is largely dependent on the goals you set for it, and how you choose to engage with each member. For example, independent board members tend to bring a different bag of tricks than a VC. Conversely, an early stage investor will be additive in a totally different light than a late stage investor.

The most common BOD challenges are often functions of these three issues:

  • You don’t communicate with your BOD: If the only time you talk with your board is during quarterly meetings, an information gap will inevitably exist. That can cause a huge operational disconnect that results in ineffective and inefficient meetings. Too much of the BOD meetings are spent getting caught up, versus having a meaningful dialogue about the key issues. 
  • You don’t want to show your weaknesses: CEOs are very often hesitant to open up and reveal their weaknesses. This may be born out of a bad experience in the past or just pure ego. They worry that if they’re candid about the challenges the business is facing, they’ll be viewed as incompetent. 
  • You don’t want to bother them: Entrepreneurs too often assume that their board members are too busy to be bothered with seemingly menial issues, and they feel like a nuisance if they ask for help.

 

While all of these issues are completely fair it’s your job to engage your board, communicate openly and frequently, and identify and tap into their individual strengths.

If you do that, you should be able to expect three key benefits from your board of directors:

  • Strategic insight and market knowledge: Most board members are either active investors in your marketplace or former industry executives. Needless to say, both types of people can often provide key insights and connections. You should probe them on what they’re seeing in the market and ask them to highlight issues they’re seeing in the competitive landscape. Don’t hesitate to go so far as to ask them to do some additional competitive research for you. 
  • Executive recruiting: When you gear up to build out your management team, you can engage your board members in three key ways. First, by asking for guidance on how to find, approach, and hire top executives. Ask them to help define and maybe even guide the process. In most instances, you should have board members participate in all senior level hires. Second, by utilizing them as a selling mechanism for top talent that you hope to recruit. Get them involved in the process if you need to close a candidate. Many times a prospect will significantly benefit from hearing about a potential opportunity from a board member. Lastly, by serving as a sounding board when you whittle your executive candidate pool down to a small group of finalists. Don’t be afraid to ask for advice on whom to hire. 
  • Operational support: This benefit most pertains to an independent board member. If you don’t have one, get one. Ideally, that person will be someone with relevant industry and scale experience. If you already have that type of person on your board, you should ask them to evaluate one functional area of your business at least once a year. It will only lead to good things if you can get fresh eyes on the people and the processes that make you tick. You should also invite a subset of your board to your annual strategy/planning session. Again, the more experienced eyes the better. 

 

A lot of boards — and board meetings — are ineffective for a variety of reasons, but this misalignment often leads to a painful half day and a totally ineffective use of resources. A board of directors is just another great leverage point for you. Take advantage of it.

This column was originally published here.

In recognition of Global Entrepreneurship Week, NVCAccess is featuring guest blog posts from NVCA members about isssues that entrepreneurs commonly face in building innovative startup companies. This information is intended to provide mentoring and guidance to entrepreneurs, and is not meant as investment or fundraising advice.

Last Updated on Tuesday, 19 November 2013 11:48
 

18

Nov

2013

Entrepreneur’s Corner: Your Secret Decoder Ring for VC Speak PDF Print E-mail
Written by Global Entrepreneurship Week   
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Guest blog post by

Sharon Wienbar

Scale Venture Partners

While Some Believe VC Questions Are Off-Base, Realize That There's a Method to Our Madness

As an entrepreneur with big dreams and a killer idea, walking into an investor meeting can be a bit of a reality check. VCs aren’t just going to fall over and swoon about your huge vision.

To sell VCs on your billion-dollar idea, you are going to get a cornucopia of questions thrown your way. Most questions dig into four issues for a company: market, strategy, financials and team.

While some may believe VC questions are off-base, realize there is a method to our madness: We want to know how prepared the entrepreneur is for the startup journey.

Here I break down a few common questions and provide insight into why are random inquiries, actually have logic behind them.

Q: Why hasn’t there been a big company in this space yet?

A: When VCs ask questions centered around an industry or inquire about the number of companies in a sector, they are trying to assess the market size and timing of your product or service space.

Don’t make the mistake of just saying, “This is going to be huge.” If there is a lot of potential in the market for growth, you must support your claims with facts and a reason for why now is the right time to act.

Providing detailed, specific insights into technology and societal or business-model trends that make your idea ripe now will help a VC understand why the market is, or will be, large when you are serving it. For example, when my VC firm Scale Venture Partners invested in cloud-sharing company Box, we focused on the cost trends of cloud storage and broadband, and concluded a theoretically large market was about to emerge.

Q: Can you talk about customer acquisition costs?

A: When you are talking to VCs, you are talking about money. VCs will ask entrepreneurs all sorts of questions relating to financial information, as they want to invest in companies that can become market leaders and highly profitable on moderate amounts of capital.

For growth-stage companies, a lot of diligence centers on your ability to scale profitably. Questions about sales cycles, retention rates and account expansion possibilities let us mentally build a growth profit and loss in our head. We look at your financial model to understand your business sense. We then use that information to build our own model to predict the company’s profits and our returns.

Q: Why won’t a big company copy that feature?

A: Questions about your startup’s features, advantages and uniqueness are asked to suss out what strategies you have in place to make your company sustainably different, lower cost or both. They are also used to probe your plan’s longevity.

And don’t get caught off guard, if VCs ask detailed, but seemingly unrelated questions regarding strategy. Some of the ones I have tossed out there include, “Where will you source your raw materials?” and “How did Company X gain advantage over Company Y back in 2005?” I am looking to assess the entrepreneurs understanding of her or his industry and strategy potential.

Also, if a VC asks why you decided to get involved in the market, it isn’t just about your passions. This question also presses on your unique insights on customer needs and market dynamics to illustrate an emerging opportunity.

Q: What storms has your team weathered together?

A: “Tell me about your team” gets asked in almost every meeting. In addition to your resumes, we want to understand your relationships: Are your people naturally complementary? Did the leader attract great talent, or have to hunt for it? How does the team deal with stress? Can your initial tight team also attract and absorb new talent? While you may be able to spew out anecdotes about how wonderful your team is, keep in mind, VCs also watch your body language. Your actions speak volumes greater than words.

Understanding how you approach opportunities, people and problems color every question. Venture capital is a long-term investment business. If we invest, we’ll be working together for years. Keep in mind, we’re watching how graciously you manage the meeting, get us on topic and react to stress: It isn’t a secret that every interaction is evaluative. The process helps you too, as you should be assessing whether the VC is the right partner for your endeavor.

This column was originally published here.

In recognition of Global Entrepreneurship Week, NVCAccess is featuring guest blog posts from NVCA members about isssues that entrepreneurs commonly face in building innovative startup companies. This information is intended to provide mentoring and guidance to entrepreneurs, and is not meant as investment or fundraising advice.

Last Updated on Monday, 18 November 2013 15:21
 

18

Nov

2013

NVCA Celebrates Global Entrepreneurship Week PDF Print E-mail

Bobby Franklin

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This week, NVCA will join the world in celebrating Global Entrepreneurship Week. Entrepreneurship energizes America’s spirit and its economy – permeating all of its industries, technologies, products, services and geographies.  It’s not hyperbole to say that venture capital would not exist without entrepreneurs and the innovative companies they build. In turn, venture plays a unique and crucial role in empowering entrepreneurs through providing funding and other resources, insights into how to build and scale their companies, experienced hands to guide them through business challenges, and connections to strategic partners and other valuable contacts.

In recognition of this special symbiosis between entrepreneurs and VCs, each day this week NVCAccess will feature a guest blog post by an NVCA member that provides insights into common issues that entrepreneurs face. Our thanks go out to Sharon Wienbar (Scale Venture Partners), Adam Marcus (Open View Venture Partners), Brad Feld (Foundry Group), Adam D’Augelli (True Ventures), and Phin Barnes (First Round Capital) for sharing their guidance. Their posts will appear under the title, “Entrepreneur’s Corner,” and feature the GEW logo. While they will represent just a small slice of the dialogue that occurs daily between entrepreneurs and VCs, we hope that these guest posts can serve as a valuable resource for entrepreneurs – or anyone else, for that matter – looking to understand the process of building innovative startups better.

Global Entrepreneurship Week runs from Nov. 18-22. 

Last Updated on Monday, 18 November 2013 11:08
 

15

Nov

2013

Moving More EGCs from the On-Ramp to IPOs PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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This past Monday, NVCA participated in the release of a new report aimed at improving access to public capital for startups and emerging growth companies. Entitled "From the On-Ramp to the Freeway: Refueling Job Creation and Growth by Reconnecting Investors with Small-Cap Companies," the report follows up on the 2011 efforts of the IPO Task Force, whose “Rebuilding the IPO On-Ramp” report helped lead to the passage of the JOBS Act of 2012., NVCA Board Director Scott Kupor (Andreessen Horowitz) served as co-Chair of the new task force, while I provided policy guidance.

The report begins by detailing how the JOBS Act has re-energized interest in the public markets on the part of startups. According to the investment database Dealogic, more than 200 companies have registered with the SEC as “emerging growth companies” since the law’s enactment. However, the number of IPOs remains below historical norms. One possible cause for this disparity between interest in public offerings and actually following through may be a lack of trading liquidity and aftermarket support (i.e. research coverage and market-maker support) for small companies after their IPOs. The result of recent changes in the mechanics and economics behind stock trading, these challenges can make it difficult for small-cap companies to raise additional growth capital after their IPOs. In short, many small-caps take on the costs and risks of becoming public companies without enjoying the benefits. This dynamic may still give pause to portfolio companies as they evaluate IPOs against other exit options.

The “Freeway” report’s recommendations address these challenges for emerging growth companies by proposing new rules for trading small-cap stocks. Specifically, these rules would increase the minimum quote increment for small caps from one cent to five cents – thus increasing the potential economic incentive for trading small cap stocks. In addition, trading of these stocks would be limited to the bid price, the ask price, or the mid-point between the two, which the task force believes will curb some of the trading strategies that undermine liquidity in the small cap market.

So far, the report has generated a healthy amount of interest both in Congress and in the administration. Only a few weeks remain in the legislative calendar this year, but we will continue to educate members of Congress and the Securities and Exchange Commission (SEC) on these issues, with the goal of seeing more concrete steps early in 2014.

Last Updated on Friday, 15 November 2013 12:07
 

11

Nov

2013

Venture-Backed Innovation Thrives Across the U.S. PDF Print E-mail

Bobby Franklin

Written by Bobby Franklin   
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As an Arkansas native, I’ve learned an important rule of thumb for visiting cities like Chicago: Get there before it gets cold. I don’t think I accomplished that last week when I blew into the Windy City as part of my nationwide NVCA “listen and learn” tour. But I certainly appreciated the warm reception I received from the Illinois Venture Capital Association.

Two months into my tenure at NVCA, a review of my travel itinerary has me feeling a bit like my fellow Arkansan Johnny Cash: “I’ve been everywhere.” But I’m glad to say I’ve already learned a lot in the process. First, I’ve confirmed that venture capital truly is a national phenomenon. I’ve been up and down the East Coast and out to California a couple of times, and recently I've made stops in Detroit, Cleveland and Chicago. At each hub, I am even more impressed with the breadth of activity I see – from angels to growth equity to corporate VC. Second, I am continually amazed by the innovations that VCs and their portfolio companies work so hard to bring to market. Our future is in great hands, and I want to do my part by telling venture’s story of transformative innovation and growth to those who are in a position to impact it – whether positively or negatively. Third, I’ve learned just how important it is to reach out to all of the participants in this impressive innovation ecosystem of ours – from entrepreneurs to journalists to policy-makers. Each of them offers insights that can help NVCA and VCs tell our story better.

While I have enjoyed these interactions immensely, I realize that they are only the prelude to the true task at hand: Translating what I have seen and heard into a vision for leading NVCA forward. Two months in, my enthusiasm for this challenge remains the perfect antidote for any jetlag I may experience along the way.

 

08

Nov

2013

Corporate Venture Numbers Show Strong Growth through Q3 PDF Print E-mail

John Taylor

Written by John Taylor   
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For corporate VC investors, the numbers are in – at least through Q3 2013. They indicate that more than 17 percent of all venture deals involved at least one corporate VC, as tracked by the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.  In addition, the percentage of dollars put into those deals by corporate VCs has doubled from 2009 levels. If current trends continue, 2013 could be the first non-bubble year since 1995 that corporate groups have provided more than an estimated 10 percent of total venture dollars.

The nine-month totals for 2013 indicate 145 disclosed corporate VC groups (plus an unknown number that submitted data but requested anonymity) invested an estimated $2.4 billion in 499 deals.  The total dollars exceed the total for all of 2012. We should note that part of the increase may stem from increased outreach to the corporate VC community on the part of NVCA and Thomson Reuters. However, the higher measured activity levels are consistent with what we are hearing in the field.

As with U.S. venture capital broadly, corporate VCs overwhelming chose the software sector, which captured more than one third of the dollars. Corporate VC sector focus tracked broader VC fairly well, with two exceptions: Industrial/Energy (the sector where many clean technology initiatives are classified) and Computers & Peripherals, which CVC’s over-weighted slightly.

In our latest tabulation, we broke out corporate VC investment in the life sciences for the first time. In the first nine months of 2013, corporate VCs invested an estimated $527 million in 90 life science deals. The MoneyTree report indicates 44 disclosed Corporate VC investors participating in this space, as well as a number of undisclosed investors. Through Q3 of 2013, we estimate that corporate VCs provided more than 10 percent of the dollars going to life science companies.

The full data file is available on the Corporate Venture Group page of the NVCA website.

 
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