A former lemonade stand entrepreneur turned Venture Capitalist
It’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:
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.