The Value of Investors
In this issue, we offer some insights from Howard Ross, a seasoned private equity investor, about some of the critical factors to consider when evaluating potential VCs as investment partners.
As always, if you have any thoughts or suggestions, please let us hear from you at insights@antiphony.com.
Building a Relationship with Your VC
Howard D. Ross
is a partner at LLR Partners (http://www.llrpartners.com),
a $260MM private equity firm based in Philadelphia, PA. He has worked on
more than 150 venture capital investments, acquisitions, initial and follow-on
public offerings. Howard holds a B.S. in Economics from the Wharton School
of the University of Pennsylvania.
Building a company is about a small group of people working together to be successful.
Quite simply, to grow a successful business, the entrepreneur, company board, and their investors must all advocate their individual points of view, but ultimately put aside their differences to work towards a common goal. Unfortunately, this is often easier said than done.
For entrepreneurs, ensuring that their VC relationships remain productive is paramount. When nurtured properly, VCs can provide a wealth of experience, insights and connections to help grow a business. However, like any marriage, the entrepreneur - VC relationship can just as easily turn adversarial over time as natural business tensions erode the goodwill of the initial courtship.
One of the most critical success factors for building a good long-term relationship with your VCs is ensuring you select the right partners up front. Here are a few points to consider when choosing a VC:
- Make Sure You Have Good Chemistry – Although good chemistry
is an intangible quality, you should rely on your “gut feeling”
to determine whether a potential VC is someone you will want to work
closely with over the next few years. As a litmus test, consider whether
you would feel comfortable introducing them to your friends and family.
If you have any hesitations, proceed no further. Good chemistry is essential.
- Talk to CEO’s and Board Members of Existing Portfolio Companies
– It pays to do your homework and do some old-fashioned reference
checking. Contact five to ten CEOs and board members from other portfolio
companies to see how the VC worked with them. Did the VC deliver what
they promised? And, don’t just talk to the references the VC offers,
talk to a variety of companies and people.
- Perform Due Diligence on the VC’s Business Reputation – Other VCs, lawyers, accountants and investment bankers can provide meaningful insights into your prospective VC’s relevant success stories and/or notable failures. How did the VC contribute to these outcomes? Also, how well does your potential VC work with other investors and professional service providers? Do they work well as part of a broader team?
[Ed. The preceding column was adapted from a discussion of the editors with Howard Ross, Partner, LLR Partners Inc. Click here for additional insights from Howard Ross.]
Contract to the Board
Jeffrey Babin, Antiphony (jbabin@antiphony.com)
Proactively managing expectations is critical in order for companies to succeed.
However, the day-to-day realities of running a business can easily consume an executive team’s time and relegate communications with key stakeholders, such as board members and investors, to last minute fire drills at monthly board meetings.
Though our experience working with hundreds of emerging companies, Antiphony recognized there’s a better way to work with these important constituencies. As a result, we’ve developed a practical framework, our Contract to the Board, to help top executives communicate progress toward their long-term business goals and manage the ongoing expectations of key stakeholders.
Contact us today at info@antiphony.com to learn more about how we can help you strengthen key relationships to grow your business.
Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers
Geoffrey A. Moore, Regis McKenna (ISBN: 0066620023)
A classic treatise on building and realizing value by understanding market dynamics and principles of product or service adoption. The concepts in this book transcend its hi-tech subtitle.
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