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In the fall of 2010 Mahendra Ramsinghani reached out to me by email about a new book he was working on called The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies. He asked for two things: (1) some of my time for him to interview me and (2) intros to other VCs and LPs. I made a pile of intros and didn’t think much more of it.
A few months later Mahendra send me and my partner Seth Levine an early draft of the book. We each gave him a bunch of feedback. I was deep into writing Venture Deals: Be Smarter Than Your Lawyer and VC with one of my other partners – Jason Mendelson – and it was neat to see how Mahendra’s book complimented ours. I also appreciated how much work a book like this was and tried to give substantive feedback.
In June 2011 Mahendra sent me and Seth a final draft of the book. I read through it and thought it was really good. When the book came out in October Mahendra sent us final copies. I turned the pages, smiled, and then went about my business.
I finally met Mahendra in Ann Arbor when Jason and I spent the day there in November, prompting my post College Is Like A Sandbox. Manendra and I spent some time talking about an idea he had for a new book and I agreed to help him with it (more on that later this week in another post.) In the mean time when I got home I dug up The Business of Venture Capital, put in on the top of my infinite pile of books to read, and figured I’d get to it soon enough.
If you are interested in becoming a VC, are a junior VC, an associate, a principal, or even a partner who is relatively inexperienced, this book is aimed directly at you. If you are an angel investor working with VCs, this book is for you. If you are an entrepreneur who wants to know a lot more about venture capital, this book is for you. It’s thorough, covers all aspects of the venture capital business, has many interviews and pithy quotes and thoughts from a wide range of experienced VCs who were interviewed by Mahendra, and is incredibly readable for a 350 page book about “venture capital.”
My review of it is really simple: “I wish I had this book in 1994 when I made my first angel investment, and then again in 1996 when I made my first VC investment. Wow – it would have saved me a lot of time, energy, confusion, and grief.”
The book is expensive, but if you are a VC, you can afford it. It’ll pay for itself many times over.
As a VC who has been blogging for a long time I’ve been fascinated by the VC Blogger phenomenon. I’ve been subscribing to, reading, forwarding, occasionally commenting, and setting up networks of feeds for a while.
With the relaunch of AsktheVC we’ve resurrected something we used to do periodically which is highlight a great VC post. However, we are taking a different tact this time around with our new motto.
“We read all the VC Bloggers so you don’t have to.”
It’s not quite the gray lady, but hey, we are just VCs and bloggers, not real journalists. Jason and I already have some great posts up from guys like Jeff Bussgang (Flybridge), Mark Suster (GRP), Fred Wilson (Union Square Ventures), Roger Ehrenberg (IA Ventures), Charlie O’Donnell (First Round Capital) and 500 Startups. We’ll provide a little additional insight, or at least a pithy comment.
We’ve also got a full list of known VC bloggers (at least to us) on the sidebar of AsktheVC. If we are missing anyone (I’m sure we are), please email me and I’ll add them.
On my run today I was thinking about GP – LP interactions. This line of thought was prompted by a contrast between two interactions, or rather one interaction and one non-interaction, that I’ve had in the past few days.
The interaction was I had with one of my LPs over the last 24 hours. They emailed asking for a reference on someone who indicated they knew me and had invested with me. I didn’t know the person, but knew a few people who did, and quickly sent emails getting addition info for my LP. With a small amount of effort I was able to generate some useful feedback, including triangulating on the deal he was suggesting we were investors in together (it was a true statement prospectively as it’s something I’m working on.) I was also able to get some specific one degree of separation feedback for my LP.
I contrasted that with the non-interaction that I’d recently had. I’m an investor in about 30 VC funds (so, in addition to being a GP in my funds, I’m an LP in a bunch of other funds.) I’m a very easy LP – I basically try to be available for the GP whenever they want, be supportive, make my capital calls on time, and be low maintenance. I invest in VC funds for several reasons, including my belief that long term it’s a good investment (and my overall performance across this category of investment bears this out.)
In the case of the non-interaction, I made an intro between an entrepreneur and the GP. I do this sparingly (per my Don’t Ask For A Referral If I Say No policy) – I’ll only do this if I think the fit is a good one. I think most of the people I’ve invested in and work with know this, but who knows. Anyway, in this case I haven’t heard anything back from the GP. When I thought about this, I realized there were several GPs I’ve invested in that are terrible at responding to me. Now, this might just be me, and not their LPs in general, but my guess is that the dynamic is a typical one given my knowledge of their individual tempo and work patterns.
I realized as I was thinking about this that I have very little respect for this type of behavior. I think you should treat your investors with the upmost respect, be extremely responsive to them, and to go out of your way to try to be helpful when they interact with you. When I reflect on the interactions I’ve had with my investors over the last 25 years, I always tried hard to be responsive, even if we had a disagreement, difficult conversation, or difference of opinion.
I tried to come up with a rationale for blowing off an LP. None of the obvious ones – I’m too busy, it’s not a priority, it’s not what I’m paid to do, I’m not interested – made any sense. And I couldn’t come up with any non-obvious ones that did either.
In every GP / LP relationship I’ve ever been involved in, there comes a moment in time when the GP needs something from the LP. This is true at the beginning of the relationship when the GP is asking the LP for an investment. It seems incredibly short sided to me for GPs to forget that they will once again need something from the LP and, instead of being responsive through the life of the relationship, only pay attention when the GP needs something.
Over the past 24 months, a deplorable activity in the money management business came to light. It got the name “pay to play” but was just another form of bribery. The common description of pay to play is “the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts.” Yup – sounds like bribery to me.
However, for some reason, the definition of this expanded to include any campaign contributions to any state or local officials, regardless of the size. So, if I contribute $1,000 to the campaign of the Colorado state treasurer, I violate this SEC rule and become someone who is “paying to play.” Now, as someone who gets multiple calls and emails most days to contribute to campaigns as an election approaches, I can assure you that it has never occurred to me to support the campaign for a state treasurer. However, I do know that a candidate for state treasurer has called me asking for campaign contributions. And I’ve politely declined.
After studying the implications of this ruling, I’ve decided it prohibits me and my spouse (Amy) from making any campaign contributions to state or local races anywhere in the country. The NVCA has also studied the new SEC rule and has come to the same conclusion:
“This ruling is consistent with guidance the NVCA has been providing members. It is now even more important to have a firm-wide policy against political contributions to these officials / candidates. This restriction does NOT include political contributions to candidates running for federal office (U.S. House of Representatives, U.S. Senate, U.S. President) nor does it include contributions to the NVCA PAC, which only gives to federal candidates.”
We’ve instituted this rule at Foundry Group, although it’s upsetting and offensive to me because I think it fundamentally violates my First Amendment rights. To err on the side of caution, we’ve determined that spouses cannot make state or local political contributions either. This infuriates Amy, as it should.
It’s even more upsetting when you consider that there is no cap on political contributions that corporations can make. The Supreme Court ruled on this in January stating that the government has no business regulating political speech. So, on one hand we have corporations who can give any amount to any candidate running for office while on the other hand my wife can’t contribute $1,000 to someone running for governor of Colorado.
Now, don’t misunderstand me – I think pay to play is grotesque. And Amy and I are huge advocates of campaign finance reform. However, the core problem of pay to play is bribery, not the active support of state and local candidates for office by individual citizens. They are totally different things and should be able to be easily and cleanly differentiated, without the government regulating my political speech.
I’ve been in several board meetings over the past month where the companies are having a killer Q2. A year ago everyone was still pretty rattled from the financial crisis and there was plenty of belt tightening, consternation, and general anxiety. By Q409 we’d had a number of companies we are investors in end the year strongly and their growth has continued into Q1 and Q2.
Over the past 15 years, I’ve sat through plenty of good meetings and plenty of bad board meetings. I always try to acknowledge the efforts of individual executives when they’ve exceeded expectations and the full team when they’ve crushed it. I’m not afraid to be direct and critical and I always speak my mind, but I try never to forget to praise people for their efforts.
When I reflect on my peers, some of the best VCs I’ve worked with are amazing at acknowledging the efforts of the entrepreneurs and management teams, especially when they are dealing with complex situations. This praise isn’t gratuitous – it’s targeted, focused, and appropriate. And over the years I’ve occasionally seen it offered up at exactly the right moment.
Unfortunately, the opposite is more common. I often sit through a board meeting and watch in amazement as the VC investors socratically pick away at the management team, asking question after question but offering no substantive suggestions. If the business is having an issue, or the CEO is specifically looking to try to work through a problem, this can be helpful. But in the cases where the company has performed well, this is at best a tedious exercise in wasting everyone’s time. At worst, it’s insensitive and offensive to a management team that has performed well, especially in a tough situation. And often, it’s incredibly deflating and demotivating.
So, fellow VCs and board members, take a moment and remember that when people do a great job, it’s worth spending a moment acknowledging them. Most of the folks I’m working with are busting their asses to create real companies. They are making many sacrifices and tradeoffs to do what they do. A little pat on the back will go a long way, especially after three hours of questions.