Carey Lai's Corner

A former lemonade stand entrepreneur turned Venture Capitalist

Part 1/4: Management

managementIt’s always exciting for me to sit down w/ the CEO of a company and learn about his/her passion.  In that meeting, akin to an interview, you learn a lot.  You learn how the CEO carries himself, how he thinks, what he’s achieved, and his vision for the business (btw, I’m using “he” interchangeably with “she”).  It’s amazing what you learn in a one hour meeting.  Whether it’s with or without a PowerPoint deck, you get an initial feel of whether or not you can invest in this person.  I admit that it’s difficult to make a decision to invest in someone after only spending an hour.  In that spirit, I’ve never made a decision that quickly in my life.  However, when you’ve met with thousands of CEOs, you get a feel for who’s back-able.  Call it pattern recognition or whatever you’d like.  When you know, you know.  So, what am I looking for during the first hour?  Here are a few things that come to mind:

  • How does the CEO manage his time during the meeting?
  • What information does he decide to cover or not cover?
  • How well does he know his business?
  • How do his lieutenants respond to him (should he bring any with him)?
  • What type of leadership qualities does he possess?

These are just a handful of things that I’m looking for in the initial meeting.  In my due diligence, I will typically spend a few weeks getting to know the CEO and his management style.

A Manager For Every Season

Something that’s probably more specific to later-stage investing versus early-stage investing is choosing the right manager for the business.  Clearly, if you’re investing at the early stage, you want a management team filled with “fire-starters” – a team who can get the company off the ground, land the right customer, and build the initial product.  The question is will the management team continue to scale as the needs of the organization scale.  It’s a fact that most founders will not ultimately run the business.  But, there are a handful, maybe two handful of people who can scale as the business scales.  Some of these Tech titans include: Bill Gates (Microsoft), Larry Ellison (Oracle), Steve Jobs (Apple), Michael Dell (Dell), Stephen Waldis (Synchronoss – I backed him, so, I threw him here in the group), Marc Benioff (Salesforce), and Mark Zuckerberg (Facebook).  However, in most cases, the founders will not be able to scale as the business scales.  At the late stage of investing, I’m trying to determine whether or not the CEO I’m investing behind can scale the business from $20M to $100M in revenue.  Or, $50M to $250M in revenue.  If the CEO hasn’t done it before, I need to make a judgement call whether or not they have the capacity to do so.  Often, you just don’t know the answer until you find yourself running such a business.  Contrary to popular belief, I have no intention of replacing a CEO unless I’m forced to do so.  I never invest behind a business in which I don’t believe in the CEO.  I would rather find another company to invest behind.

As you can see, it’s very difficult and challenging judging a management team.  There have been times when I’ve been surprised on both ends of the spectrum.  However, at the end of the day, I get paid based upon my ability to make judgement calls.  I’m thankful for my experience, which has given me a unique vantage point in working with some of the best management teams in the world.

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2 comments on “Part 1/4: Management

  1. Andy
    May 2, 2011

    I can only imagine how brutal it must be to tell someone he’s not the right guy to lead his “baby” into to the promised land.

    • CL
      May 2, 2011

      Honestly, it was initially hard to turn down entrepreneurs. In my business I say NO 99% and only YES 1% of the time. So, you quickly learn the right and wrong way to turn down entrepreneurs. After all, the entrepreneur is pouring his blood, sweat and tears into his baby. It’s my job to tell him that his baby might not be the best fit for us. However, I’ve always believed in putting the entrepreneur first. That means, I always try to over communicate where we stand on a weekly basis. I never provide a slow NO because there are few things in life worse than a slow NO. If it’s a NO, I’d rather the NO be a quick NO. That way, the entrepreneur can find alternative means of financing. Additionally, I always provide 1 helpful area I think they can work on and 1 way to help. I call it the help-help method. For example, if I think the entrepreneur’s company is just a bit small, I’ll let them know areas they can work on and I’ll also provide a helpful introduction to a customer or potential partner. I love to be proven wrong. I think any way I can help the entrepreneurial community is win for everyone. I don’t think I ever get used to saying NO, however, I’m always trying to find reasons to say YES.

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This entry was posted on May 2, 2011 by in Uncategorized.
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