Leaving VC

Some news: I’m moving to Norway. After two years as a strategy consultant at Monitor Group and five and half years in VC with Smedvig Capital (a Series A/B investor), I’m joining Xeneta as Chief Strategy Officer at their Oslo HQ.

(Xeneta is a Smedvig portfolio company, I wrote about why we think it is a great business here)

Being in a reflective mood, I thought I’d jot down thoughts on what I’ve learned from working with some great entrepreneurs (at Tusker, Kings Court Trust, Veeve, Profile Pensions, MyHomeMove, Xeneta) and great investors at Smedvig Capital and other funds.

Given there are plenty of VC 101 blogs, I’d like to focus on how junior to mid-level VCs can best support the entrepreneurs they work with in their portfolio: when to give advice and, arguably more importantly, when to keep quiet.

Entrepreneurs face a bewildering set of decisions:

  • Should I double my prices?
  • Should I hire this person?
  • Should I raise more money?
  • Should I launch a new product?
  • Should I acquire this company?
  • Should I sell my company?
  • Should I fire this person?
  • And many, many more…

Helping entrepreneurs with these decisions is a key part of the VC’s role as a board member and adviser. And even a junior VC can provide useful input: we meet hundreds of entrepreneurs a year and work with multiple portfolio companies, which quickly gives a useful set of examples and case studies to draw on.

That being said, I think it is just as important for young VCs to be acutely aware of when they are not qualified to give advice. We can be an intellectually arrogant bunch who are adept at using a high level understanding of a topic to sound like experts. This is (arguably!) a useful skill networking and deal sourcing, but can lead to inexperienced junior VCs giving the wrong advice to entrepreneurs. Falling for the availability heuristic and confidently drawing the wrong conclusion from the wrong set of data is easy to do, and a bad look for a fresh faced VC trying to win the respect of a founder.

This is compounded by the lack of feedback loop. VCs have access to money, so founders can feel pressure to flatter them - it can be easier to smile, nod and ignore the terrible advice, than to risk falling out with a potential future funder of your business. As a result, it’s hard for a VC to learn whether or not his or her advice is any good, or indeed whether anyone is actually paying any attention.

So how can a VC go about making sure their advice is useful, even if they haven’t sat on the board of Airbnb or Slack? Having spent a while thinking about it, I came up with five rules of thumb:

1. Put the work in

  • Once you have 20 years’ experience, say what you like…
  • …until then, do some work: understand market sizes for different products in different geographies; map out the industry’s value chain; talk to customers to understand how they make decisions
  • Don’t say: I’m not sure that this product is really the big win we need
  • Do say: This would only serve Fortune 500 customers, the TAM is only $200m, is that enough?

2. Share what you learn

  • Look for best practice (in other portfolio companies, from other entrepreneurs you meet, from reading, etc.) and share it
  • Understand how successful entrepreneurs solve problems and consider if their approach would help your portfolio company
  • Don’t say: Why aren’t we getting any leads from marketing?
  • Do say: How well do we understand our funnel? Another portfolio company are great with Hubspot - they think about it like this…

3. Focus on the decision making process as well as the output

  • Make sure the business is explicit about answering the key questions it faces
  • Make sure the Board (or other forums) debate all key strategic issues; gather input and provide a structure to frame these discussions
  • Don’t say: I think we should open a US office this year
  • Do say: Is the US definitely the right call? Are there any other geographies we should look at? How should we choose between Germany and the US?

4. Know what you don’t know

  • Think hard about whether what you’re saying is good advice and whether your experience actually qualifies you to make a confident statement
  • Remember that questions relating specifically to the industry or operations of the business are particularly high risk for a VC in their twenties who has never had an operational role
  • Don’t say: We should sack the CTO, I’d email her right now to get her out of the office
  • Do say: Are we sure about the CTO? I can introduce you to a couple of great ones and you can see if she measures up

5. Build relationships and get feedback

  • Understand that entrepreneurs won’t always be upfront with you
  • Put in the time to build a relationship with the team and build trust
  • Don’t say: Great board, see you next month!
  • Do say: Can we do half an hour on the product strategy after the next board — I’ve pulled together some slides and wanted to get your view

If you get it right, you can be an invaluable source of advice and trusted sounding board for entrepreneurs, even very early in a venture career. Get it wrong and you risk spending a lot of time shouting into the wind…

I’d love to hear any thoughts on these points, and will be available for drinks in Oslo from March.