On the afternoon of day two of the Dublin Web Summit, Paul and I attended the Investor Summit at the Intercontinental Hotel next door to the main event*.
The Investor Summit had two roundtable sessions with the following interesting questions being debated by c 10–20 investors in each roundtable group.
For us, this was a very interesting and useful forum — being thrown together with other investors from around the world — mainly VCs and mainly from Europe, but with others in the mix too from US, from the LP side (ie investors in VCs rather than VCs themselves), advisory and so on.
A couple of useful things struck us. The first was about the mindset of how a VC should add value to the investee company.
In the roundtable discussing: “They aren’t all going to go public: Navigating portfolio companies through M&A”, the group of VCs seemed to be very focussed on financial engineering. That is, in the situation where a company was underachieving and the shareholders would rather go for a trade sale sooner rather than later, the investors were all discussing deal terms. That is: how to structure terms for providing the runway to allow a sale, how to ensure investor and retained management are incentivised — usually at the expense of other shareholders of course.
Paul raised the question obvious to us: how can we give operational help to our companies to avoid these situations in the first place or fix the situation when it arises. The other VCs in the group didn’t seem to understand the question. It brought it home to us that many VCs focus on doing a great job at selection and leave all aspects of running the companies to the management.
We believe our role is also to mentor management and especially the CEO. We want to add operational experience and value to our companies (without of course working there as we only have limited time per company).
It’s a bit like the old Irish joke where a guy asks someone by the side of the road: “How do you get to Dublin?” and the local replies: “I wouldn’t start from here”.
For us the first step is at all times to help our CEOs think through what has to be proved by when. We should all know when the cash is going to run out way ahead of that time and be considering course corrections, at every board meeting if necessary.
Of course some our companies end up in difficult situations — they can run out of cash before they have proved enough to attract new investors — but we will have had months of warning about this and will already have tried lots of fixes including providing operational help to the management either ourselves or more likely by introducing others who can make a material difference, or recommending changes of approach which can solve the problems.
[Note to entrepreneurs at Web Summit you pay for a stand for one day out of the three. The traffic of professional investors will be much lower on the day of the Investor Summit than on the other days — to get value for money for your stand, try to avoid that day — this year the second day — the Wednesday]
Note also: other learnings from Dublin Web Summit to follow soon…