Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Gerry Langeler
Every year, we have all our portfolio CEO’s come present to us, every hour on the hour, for three full days. It is exhausting mentally to switch gears that fast, and have to concentrate that hard without stopping. But after three days, we have a refreshed sense for the portfolio and the CEO’s. We know which companies we think will be “fund makers”, which are simply “too soon to tell”, and which are headed in the “wrong direction.” We know (or think we know) which CEO’s are likely to scale with their businesses, and which will probably need to be in a different role as their firms grow.
On balance, we always come away energized from our CEO-a-thon, because seeing the firms all together helps us remember why we built the portfolio in the first place – and why we love this business. This year was no different, but a few things stood out. After the event, we scored both the companies and the CEO’s on a 1-5 scale (5 being the best). One comforting observation was that in general our scores were rather close across the OVP partners. So, at least if we are delusional, we are all delusional together.
Here’s what we saw as we analyzed the results:
The count and the amount…
The 29 companies in the portfolio split almost perfectly – with a third scoring 4 or better, a third between 3 and 4, and a third below 3. If we could run the clock ahead to actual liquidity events based on those numbers, we’d be very happy indeed. More likely, reality will intercede in a few of the current high scorers.
The CEO’s in the more mature portfolio (OVP VI) scored slightly higher than their companies, while the current fund (OVP VII) CEO’s scored slightly below their respective firms on average. This makes sense, as in OVP VI we’ve had more time to either let the CEO’s grow, or find CEO’s who fit the growth opportunity.
One (and only one) CEO scored a perfect 5, while no company scored a perfect 5. We don’t think there was much, if any, grade inflation in play.
As we looked at the ‘by partner’ data, the OVP representative Board member was often among the lower scores for both the company and the CEO – even if both were high. Familiarity doesn’t breed contempt, but perhaps it does add to realism.
For those OVP companies and CEO’s who read this – sorry, the scores are not available for external consumption. :-) Now that we have numerical benchmarks, it will be fascinating at next year’s CEO-a-thon to see how much the numbers and ratings change, or don’t.
Value added is a group thing…
The second realization we had this year, was that being a “value-added” VC is a whole lot easier when you’ve seen the company recently! The venture industry is a strange area in that our job is to make smart investments and then guide them along their path to hopefully a great liquidity event. We are organized in groups (5-10 partners depending on the VC firm) specifically so we can add value as a TEAM to our portfolio.
However, as a practical matter, the lead partner – Board member – is the one who sees the company all the time, while the other partners hear from that Board member in summary on Monday mornings.
The challenge we have is: how do the other partners consistently add value to the thinking, strategy, pipeline, hiring or even brainstorming, if you only hear the story in a condensed form once a week? Too often, those mornings are limited to reporting high level performance, any bad news, and/or any fantastic news that happened that week. Very rarely is there time to go thru company by company and circle the room of partners to see how each might add value. Who might know the head of Investing at Neilsen? Who most recently met with the clean tech partner at DFJ? Who knows of a top shelf VP R&D for a wireless equipment deal? And those are the easy ones that email can cover!
What about…. This company is being requested by their biggest customer to launch a new product line that could potentially lead to a broader and big opportunity for the start up – but it is somewhat off current strategy. But how do you put gates around the customer requests plus demands on their payments so you don’t get in too deep? At what point do you invest in the market analysis to see if it’s worth spending any time on this as a broader opportunity. When do you say ‘no’ to one-offs? While this sounds simple, and will surely be discussed by the start up’s very smart Board….getting the benefit of five other partner’s pattern recognition on the topic is a challenge. Yet it is exactly that challenge the start-up CEOs and our Limited Partner investors expect us to solve.
The three days were very helpful to us for thinking through future decisions on these 29 firms. Now the goal is to maintain that broad engagement with the partnership in the months ahead.