Continuing my walk through some of the characteristics that make a great investor (courtesy of Matt Blumberg’s thoughtful post on this topic), today’s topic is:
Great investors get to know whole management teams, not just CEOs — in fact, great investors become part of the extended management team of their portfolio companies
This is an interesting topic, and one that I recently covered with the founder of a company in which RRE recently invested. Again, I think there are two separate claims being made here about what a great investor looks like.
Great investors get to know whole management teams, not just CEOs.
At one of our Kauffman Fellows modules in Silicon Valley earlier this year, we were joined by a panel of four CEOs of VC-backed companies. We covered a variety of topics, one of which was this very question – should a VC on the board of a company have separate relationships with other members of senior management besides the CEO. What I heard there (and what I’ve learned working with our portfolio companies) is that there is a broad range of perspective on this question depending on which CEO is asked.
Some CEOs (like Matt) want investors to get to know the other members of management. I generally prefer this approach – I can get a better sense of a company’s sales effort if I have a separate relationship with the VP of Sales (not to mention I take up a lot less of the CEOs time asking questions about sales if I can go straight to the VP). If I want to have a discussion about a product choice or an engineering issue the company is having, I can have it on a more tactical level with the person directly responsible for that area. I’ve found some CEOs like this approach, and just want to be kept in the loop on what we’re talking about.
Other CEOs (including virtually all of those on the aforementioned panel) feel exactly the opposite. These CEOs don’t want investors “mucking about” with the company, and feel that investors should trust the CEO to provide updates and route appropriate requests and questions through to other members of management. I was a bit surprised to hear the fervor with which this point is sometimes made – some founders consider it an absolute breach of trust for a VC to interface directly with other members of the team.
All of which rolls up to – great investors find out what type of relationship their CEOs want them to have with other members of management.
Great investors become part of the extended management team of their portfolio companies
In a sense, this is the opposite of Matt’s original claim that VCs don’t get into the operational weeds of the company. By becoming extended management, investors are 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 involved with various management functions within a company.
Yesterday I suggested that taking a more hands-on approach is appropriate when a company isn’t on plan. It might also be appropriate when the company is doing exceedingly well and scaling so quickly that management is overwhelmed. This is another opportunity for an investor who has the right capabilities (this is critical) to step in as a relief pitcher of sorts (maybe that’s a bad sports analogy – an extra blocker? Second tight end? I’m bad at sports metaphors) and provide support while the company staffs up toward a higher growth rate. You sometimes see VCs serve as interim CFOs for companies that are in this position.
Ultimately I agree with Matt’s basic point – great investors are members of the team, spend time on the company’s issues and don’t just wait for monthly updates at board meetings. But I’d include the caveat that great investors take the time to know what their CEOs want from them in this area, and interact with each company in a way that works for that particular CEO.