What Do VCs Do? An Inside Look At How We Work With Portfolio Companies

A couple of weeks ago, I was a guest lecturer at an entrepreneurship class at one of our major state universities.  I covered the usual topics (the four risks of a startup and how VCs evaluate against those criteria), etc.  But at the end of class, a student came up to me and asked an unusual question.  He said, “So, now I know more about how you decide on which startups to back.  But, more generally, what do you do?  What does a typical day or week look like?”

 

It struck me that he probably isn’t the only person with that question, as VC-land is a foggy land to many folks.  In addition, I think those that love to bash VCs (OK, sometimes we deserve it) or minimize the value of taking VC money, might curb their enthusiasm if they knew what we actually did all day.  Or maybe not, but I’ll let you make the call.

 

So, let’s run through the first couple days of this week:

 

Monday:

We start every Monday with a partners meeting.  Over the course of three to five hours we go through our existing portfolio of companies, review new potential deals, and take care of other internal business.  What might be interesting to you is exactly what we discuss during that period.

 

We review the existing portfolio in reverse order of “time to cash hitting zero”, starting with those in the red zone (weeks left to six months), then the yellow zone (6-12 months) and then the green zone (more than a year).  For each one, but particularly those approaching the cash-out wall at high speed, the lead partner / board member talks about what the issues are at the company where we might have an impact.  Help with finding new outside investors?  Introduction to potential key partners and/or customers?  Key personnel hires? If no new investor shows up, are we ready to write a check by ourselves? Given the level of the discussion, and the fact that we have about 30 companies to discuss, this usually takes a few hours.

 

This week, our partners meeting happened to fall directly after our annual Technology Summit, the gathering of our OVP Technology Advisory Group (OTAG), so a number of times we agreed that an introduction to one of those folks would be useful to some portfolio company.  In addition, we reviewed the folks who comprise our OTAG and decided we were delighted with the IT and Biotech folks, but needed to beef up the Cleantech representation a bit.  As the cleantech lead for the partnership, I came away with the action item to go make that happen.

 

Then, we spent an hour or so looking over the list of startups on our “potential deal” log, with discussions about which ones looked most promising, which ones we wanted to follow closely, which ones we could dispense with easily, which few we wanted to invite in to present in the near term.

 

After lunch, we had a presentation from a potential new investment where I would be the lead partner – so I was listening to them – but as importantly listening to the questions my partners raised, as a guide to where I should focus my attention – assuming I got the green light to proceed with due diligence.  (I did, so the work begins….).  Here endeth the partners meeting.

 

Now it’s 2PM, and it was onto a call for one portfolio company where I am the Board member shepherding the process of hiring a CEO (with the founder’s full support) – and we spent some time with the executive search firm trying to figure out how to land the big fish we think we’ve hooked.

 

Now, about 3PM I’ve moved into a temporary unofficial role as “VP Marketing” for one of my companies as they are about to look for an outside VC for their Series B round.  I spent about an hour roughing out my suggestions for the pitch deck, and sent them off to the CEO of the company.

 

The rest of the day was mostly catching up on calls and emails – with one notable one where a portfolio company (I am the backup to my partner Mark Ashida) has just landed a new VP of Sales after a long search.  I sent off a sassy email to the CEO congratulating her, but also asking if this meant the forecast for the year is going up.  She responded in kind, with words not appropriate for this blog.  Those who think we don’t have some fun amongst the serious tasks at hand are misguided.

 

Tuesday:

The day started with an email from another portfolio CEO with a draft business update for a potential strategic investor that I recently introduced to the company.  Said CEO wanted my input on the draft, particularly because I know the potential new investor and have at least some clues about her “care abouts.”  The goal is to get a relatively non-dilutive chunk of cash to fund R&D on some exciting areas we just can’t support out of operating cash flow right now.  The draft got some editing from me, and was on its way back to the CEO.  We set up a meeting for early on Thursday to review it, and also deal with some major people issues on his plate.  It wasn’t the first time I’ve had a CEO say as he did, very directly, “It’s lonely at the top, and I appreciate you being willing to be a sounding board on this.”

 

At 10AM, I’m visited by someone representing a local university.  They are trying to figure out how to align their curriculum to better serve the community by preparing graduates to create or join start-up companies.  We have an active discussion about what we think they can do better, and what models there are for doing this well.  I mention that UW does a very nice job, in our estimation, and encourage them to tap that group – particularly our partner Rick LeFaivre who now works half-time at the U.

 

Then it was off to lunch with an entrepreneur who we had turned down six months ago.  He had reached back out to us to indicate he had made significant progress along some dimensions that troubled us back then – and wanted to see if we would be open a fresh look.  Our answer was, “Of course!” He indeed has made good progress, and so he’s back on the deal log list.  So, all you entrepreneurs who hear “no” from a VC, do not despair.  We do react to new data. In addition, it became clear that this startup, and the one I’m just starting diligence on up above, have some good reasons to work together.  So, I engineered a mutual introduction and got out of the way.

 

Then, back to the office to meet with two investment bankers from one of the three largest financial services firms in the US.  They wanted to learn more about our portfolio, with this particular team focused on software and digital media.  While they were pumping me for info, I returned the favor and probed on their quarterly session at which they expose relevant startups to their IT department (with a budget that ends in $B).  We’re now on that list to tee up the companies we have, when they are ready.  In addition, this firm has an annual beauty show with a private company track that could be ideal for late venture / mezzanine rounds for our firms.  We’ll now get the chance to propose a select company or two this fall.

 

During a quick review of the email that had piled up I found one portfolio company who had been trying to work out a deal with another one, had gotten at loggerheads with that other firm.  I tried an ego-diffusing ”let’s all play nicely” request to the CEO where I’m on the Board.

 

Finally, I was part of an ad hoc portfolio Board call late in the day where the CEO asked us to wrestle with the issue of a customer who is very late in payment. We have to decide how hard to push, and whether to actually cut off that customer from product delivery and maybe lose them forever.  Trying to do this firmly but carefully, and maybe retain the relationship, demanded all our collective experience.  Time will tell whether we got it right. 

 

So – that’s two days in the life of a VC.  They are typical in the degree of variability and the number of events that are ad hoc, time sensitive, and yet fairly business critical. Some deal with the immediate term, some long term. Some are portfolio specific, some are community service, some are OVP internal.  You can see all the business risks and challenges on display.

 

For those who aspire (if that is the right term) to be a VC someday, decide if this kind of life sounds fun.  It can be certainly stressful.  For those who think all VCs bring to the table is money, I’d offer this up as counter evidence.  Whether my counsel across these various scenarios was useful is another topic, of course.  But there is no question that as an active VC, we are called early and often to be supportive and to contribute well beyond the dollars invested.