Five Years Too Late

September 4, 2009

Great Investors

Filed under: Uncategorized — fiveyearstoolate @ 1:51 pm

Eric Wiesen

Eric Wiesen

Matt Blumberg of Return Path recently posted a list of Ten Characteristics of Great Investors. I like lists (don’t we all?) and read this post with interest. I agree with some of them, not so much with others, but in generally it looked like the table of contents for a great series of posts. So I thought I’d take them one by one. I had no hand in Matt’s post, nor did I comment on it, but it got me thinking about my work at RRE and how I can do my job well, and I think each of the points he raises deserves its own longer-form treatment, perhaps a post per.

Great investors know how to give strategic advice without being in the operating weeds of a company

There are two claims being made here.

Great investors know how to give strategic advice.

This is undoubtedly true – and in fact is true of board members generally (not just investors), since the role of a board director is not to run the company (that’s the CEO’s job) but to evaluate and assist with strategy, among other things. There is, of course, a secondary question – what constitutes “great strategic advice”? I would argue that venture investors in particular should bring to bear a broad perspective on the market and the sector in which a given portfolio company operates. If I invested in a particular company, it’s likely (if I’ve done my job) that I did research around the space, met the different companies and heard their stories, and (of equal importance) considered adjacent parts of the market.

Of course, a great CEO is also keeping track of the competition and understanding the value chain on either end of the product or service that the company provides. But the investor does this type of thing essentially full time. In the abstract, a good VC spends his/her day meeting companies, doing research and working with their existing portfolio. And in the abstract a good CEO spends his/her day on business issues strategic and tactical.

A great investor can provide strategic advice by bringing to bear a strong, informed perspective on the sector, the market and with a series of patterns recognized from other companies past and present. Great strategic advice acknowledges the position the company is currently in, is backed by a strong understanding of the competitive dynamics around the company, and (critically) is realistic.

Great investors stay out of the operating weeds of a company.

On Day 1 of an investment I absolutely agree with this claim 100%. And in a company that’s doing very well, it is equally true. (see Stuart’s post on this topic) But I think there is a large and important category of startups where this is not unequivocally true – companies where things aren’t going according to plan.

Many entrepreneur friends of mine routinely talk about how they want their investors to have operating experience. And this makes sense – someone who has run their own company or run a business unit within a company is capable of being operationally helpful when there is a problem and the CEO doesn’t necessarily know how to fix it. This isn’t to say that those VCs who aren’t career operators (as I am not, although I was an entrepreneur a couple of times) aren’t also capable of understanding operational challenges and helping companies think through them But in either case, rare is the startup that doesn’t encounter some form of ops problem somewhere along the way. I know from experience that in these situations founders and CEOs will turn to their investors for help if the investor has demonstrated a willingness and ability to be helpful on a tactical level.

So I’d modify the comment to be – great investors provide high-quality operational help when asked, and stay out of the way otherwise.

3 Comments »

  1. […] by definition going to take an additional level of operational involvement. That all being said, as I wrote yesterday I do think there are times when it’s appropriate for investors to get their hands dirty and get […]

    Pingback by Put me in, Coach « Five Years Too Late — September 5, 2009 @ 6:41 am

  2. Good modification, Eric. The earlier company, the more helpful the *right* kind of investor can be on operational things.

    Comment by Matt Blumberg — September 5, 2009 @ 1:25 pm

    • Matt – I think there are three scenarios where investors can appropriately be operationally involved.

      1. Early stage companies – agree with you entirely.
      2. Companies that are struggling.
      3. Companies that are scaling incredibly quickly.

      In all three of these scenarios I think there is a role for investors to play an important operational role (but with the critical caveat that only an investor who has these capabilities should get operationally involved – if the investor is self-aware and doesn’t have the operational chops to do this, the investor’s job becomes more about getting the company more help, either in the form of additional staff, help from the investor’s network or from the independent board slots).

      Comment by fiveyearstoolate — September 5, 2009 @ 4:05 pm


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