On How VCs Can Add Value
As a founder, the thing that made the most impact on me was when the VCs were willing to lean in more frequently and with more direct help than strictly attending board meetings. This is to the degree they offered their time, resources, and personnel in critical moments when I needed them. Whether that would be help in recruiting, access to somebody to help build out a new financial model, or ideate brand development, a product roadmap modeling …etc.
Be there for companies when times get tough. Most companies are statistically not going to make it or going to scuffle, struggle and have all sorts of weird development trajectories. It counts a lot when you are there in those moments as a supporter.
You’re trying to sell yourself in a competitive landscape. Talk to people that have had that experience with you. Give founders those referrals and let them hear how you’ve made a difference in those other companies. That’s a huge deal.
On Advice to New Managers
You need to balance and spend an adequate and appropriate amount of time with each investment to nurture them in a proactive way. Not over nurturing and stifling them or, under allocating your time to them so that you’re meeting them on a quarterly basis only at the board meetings.
The size of the fund and ticket sizes are important. If you’re going to raise a $10 million fund and you want to put $250k to $500k in the first ticket, I expect you’re not going invest in more than 20 companies. If you think you’re going to invest in 50 companies I probably have a problem because that’s just spreading yourself too thin.
The size of the fund and the partnership team size relative to that is also very important. I like to see more than one partner and also I like having at least one ex-founder in the partnership. I think this brings an absolutely essential view to governing and managing companies in their lifecycles.
On How LPs Pick Fund Managers
I’ve backed quite a number of new fund managers. New managers are out there just sorting through the piles of opportunities that exist. And they’re all are looking for a way to demonstrate that they’re good pickers. Statistically speaking you’re not going to win on all or even most of your picks and that’s okay.
The real thing that I look for is their history in picking people and judging how to build good teams. If you can demonstrate to me that you have the ability to find, recruit, hire, train, develop and allow groups to succeed at a significant level, that is a great sign.
This is because you can take a great company and run it into the ground with mediocre people and a great idea. But if you have a mediocre idea and you put great people around it you’re more likely to succeed. So I’m first and foremost looking at that as a judgment and frankly, I think that’s a pretty decent pattern to match.
On Fund Operations and Reporting
As an LP I just want the information available for me to consume. For example, one of the best fund managers in my portfolio has a semi quarterly status letter that gives me an overview of the operations of the fund with concise updates such as what they are excited about and what they are looking at. They have information on the portfolio companies, which allows me to dive deeper into individual performances.
The fact that they are taking the time to keep me informed of their progress, with documentation, gives me a lot of confidence. I don’t know that necessarily denotes a better manager, but it definitely gives me as an LP more confidence in their ability to organize their thinking, their communication, strategy, and keep their LPs involved. This, by the way, is one of the funds that has come back for more money, and I have put a lot more money in.
On Big Competitors
First of all, you’re competing for different deals. You’re competing with the other folks who are also $10-$20 million funds and are writing similar-sized checks to you, or maybe slightly bigger than you. But the bigger the fund, the more money they have to put to work in each deal. It doesn’t make sense for an Andreessen Horowitz to invest $100,000 in anything.
They can’t make the numbers work. They don’t have enough partners, time or energy to go around to compete with you at that size. So make sure you know who your competitors are as those people, probably won’t show up in the deals you will be involved in.