Board Observer vs. Board Member
Venture capitalists generally participate in boards in one of two fashions – either as actual board members or as board observers (see Brad and Jason’s post on Term Sheets – Board of Directors — for more information on how we take positions on boards). As an associate at Mobius I was not able to take actual board seats, so I took the board observer position in the companies I worked with (note that generally this isn’t an official designation – although I have seen board agreements that require the venture firms to specifically designate the board observer; more commonly its just a seat at the board table reserved for someone from the venture firm other than the board member). As an observer I am an active participant in board meetings, but I don’t vote on any board matters and in some cases need to step out of meetings (typically to protect attorney/client privilege, which covers board members but not board observers). The boards I am involved with have all welcomed me into all of the regular and executive sessions of their meetings. Different firms treat the distinction between board observers and board members differently. At Mobius I am encouraged to be an active participant in the businesses I work with and I have never been shy about voicing my opinions at meetings. Other firms have a similar philosophy, but some feel that observers are just that – people who can attend meetings but should not participate. I’m planning a series of posts with some of the CEOs that I work with, so you can get a sense of how the relationship dynamic plays out. Stay tuned for that. …
January 18, 2005· 2 min read
Financial Models – Too Much Information?
At Mobius Venture Capital, as in many venture firms, we don’t have analysts (people whose primary responsibility is to run models, cap tables and the like). As a result, each of us does most of our own financial modeling. I actually like this set-up, because it makes sure that I’m both directly responsible for my work and am up to speed on the financials of each of the companies I work with. Reviewing financial models is not the largest part of my job, but is an important part of what I do – for screening new investments; tracking portfolio company performance as well as analyzing follow-on investments into companies in which we already have a financial interest. In the course of reviewing many many many such models, something rather counter-intuitive has struck me: most financial models are too detailed. That’s right – most models have too much information in them; too many assumptions; too many inputs; and are too hard to follow. Now, don’t get me wrong – there is definitely a place and time for a detailed line item budget (say for a rolling 12 month operating plan). That said, trying to detail out line item projections over a 5 year period I think makes models less rather than more useful. When I was in college I really enjoyed theoretical economics. One of the classes that I liked the most was Econometrics. As a relatively green econ student, I remember that my inclination (and that of my classmates) when building econometric models was to put in as much data as possible – the theory being that more data wouldn’t harm the model and would potentially help it. Our professor, Gary Krueger, pounded into us that this was in fact not the case – weak data hurt your model and taking out mediocre variables actually strengthened the veracity of the output (the garbage in/garbage out theory – although he had more colorful way of describing it at the time). I think a lot of modelers fall into a similar trap as me and my classmates first did – instead of simplifying their business to a reasonable and manageable number of inputs and variables, they attempt to put every complexity of their company into the model. …
January 12, 2005· 4 min read
The Adventure Reference
A number of people have written in and correctly identified the Adventure reference of my blog title. Here’s the full reference and why I chose it as the title for my ramblings. When I was a kid I used to love playing “Adventure” (written by Will Crowther and Don Woods back in the late 70’s). My dad worked for Digital Equipment Corporation, so I was rarely without a computer of some sort (terminals in those days; first with a 300 baud modem and eventually a super speedy 2400 baud model that didn’t even require you to insert your phone receiver into two plastic cup things to make the connection – you could actually plug your phone line directly into the modem!). I also had basically unlimited VAX time since I could log into an account my dad set up for me pretty much any time from home. I liked computers and spent a lot of time trying to write up rudimentary BASIC code and, of course, playing Adventure. I eventually mapped out the entire adventure world (I still have the pencil written map in a box of memorabilia from my childhood). …
January 10, 2005· 4 min read
Putting together a good venture presentation
From time to time I’m planning on writing posts aimed at giving some insight into the venture industry. Brad (sometimes co-authored by Jason Mendelson, our GC) has done a series of these that I think are very informative. In fact, my very first blog was a guest column for Brad that described splits and the various ways to calculate them in a venture deal (and why this matters to entrepreneurs). I sit through a lot of venture presentations. Literally hundreds of them. Some are very good but a good number of them are really poor. Seriously. This amazes me. I think it’s pretty hard to get an audience with a VC (I think about the number of plans we receive every year that we don’t see the pitch for vs. the number that we invite in for a meeting). I’m amazed how often entrepreneurs fail to put their best foot forward when they do get a meeting by having a sub-par presentation. I think it’s because too many entrepreneurs know their business so well that they forget how to describe it to people who don’t. Here’s a couple of do’s and don’t that I hope will be helpful. Also below is a list of what a good venture presentation should include (I believe this was originally put together by my colleague Chris Wand a few years ago). – DO have a 2 or 3 sentence description of what you do. This should be simple and straightforward. You grandparents should hear you sa this and say ‘oh – I get it’. – DO make sure you start your presentation by telling the people who you are talking to what it is you do (I’m truly amazed by the number of times it takes 6 or 10 powerpoint slides to get to the part of the presentation where I finally understand what it is the company that is presenting actually does) – DON’T assume that the problem that you solve is obvious. Make sure you do a good job outlining what it is that you ‘fix’ – DON’T have a financial plan that shows you becoming the most successful [insert your company type here] company ever in existence. I’m amazed how many enterprise software companies show us with a plan that has them generating $50m in revenue in their 4th year . . . while at the same time insisting that their plan is ‘very conservative’ – DO make sure you do time checks – first at the beginning of the presentation to know how long you have an audience for, and then periodically to make sure you are still on schedule – DO make sure you then organize your presentation around the time you have (which is to say, understand the meat of your presentation and make sure you get to it in the time you have allotted); a corollary to this is to make sure that you skip sections that you are asked to skip. We regularly spend 10 or 15 minutes time going through something (for example the market overview of a market we already know broadly very well) that we’ve asked an entrepreneur to skip over, only to run out of time during the real guts of the presentation (i.e., defining how the company’s technology is unique from that which we’ve seen before). – DO make sure you practice your presentation out of order and interrupted – a lot of good presenters get completely flustered if they get off track or have to take things in a different order than they planned – you should expect that you’ll get interrupted with questions, asked to skip over sections and challenged on certain points – practice your presentation that way. Questions to answer in a venture presentation. (n.b., please don’t see this as an end-all/be-all list, but rather as just a guide): Vision – What is your big vision? – What problem are you trying to solve and for whom? – Where do you want to be in the future Market – – …
January 8, 2005· 6 min read