Thanks @BrentBeshore
1/ I think our disconnect might be whether or not the investor has control post investment. If the investor buys control then I agree someone needs to step in and have a hand on the steering wheel. Regardless of size.
1/ I think our disconnect might be whether or not the investor has control post investment. If the investor buys control then I agree someone needs to step in and have a hand on the steering wheel. Regardless of size.
2/ In a minority situation, I don't believe those activities add value (reviewing incentive packages, board mtgs, co-creating a growth strategy, etc). Again if the investor has control, yes- someone who cares about the outcome needs to do those things
3/ But in situations where the private investor is simply buying a minority stake- my experience has been those things do not add value to the entrepreneur- and often detract value.
4/ So many private investors think they are jacks of all trades – they can source deals, source LPs, value companies appropriately, pick the right companies, execute transactions, help companies post close- and do all of those things across stages and across industries.
5/ The result in my experience has been they often give distracting and unhelpful thoughts/experience. Facebook employee #800 honestly doesn't know much about going from 0-1. They were on one of the greatest rocketships of all time- they werent in the room making real decisions.
6/ In my experience – working with and for some of the best private investors in the world, the value of the activites you listed for *minority* investors is often neutral to negative.
7/ While the private investors always think they are the smartest in the room, the reality is their experience working with a $50m chemical companies just isn’t that applicable to the $5m makeup company.
8/ Or their expereince helping build a sales team for one stage/industry just doesn't translate to [incentive plan creation] in a totally different scenario.
But the problem is they often think it helps - creating distraction and a difficult scenario for the CEO.
But the problem is they often think it helps - creating distraction and a difficult scenario for the CEO.
9/ I'm writing this because I often hear others - typically VC investors in SF or NY- talk about how their "Dark Arts" style approach is what all founders need.
Hard to define but the VC can solve all the problems- and the founder needs that help.
Hard to define but the VC can solve all the problems- and the founder needs that help.
10/ That bothers me in part because that mentality has led some LPs to believe minority investors need to do those things (thus fueling more of it with their LP investments) and has led some entrepreneurs to drink the KoolAid as well.
11/ But there is no efficient channel for entrepreneurs to speak the truth - about how little value many of their investors often add.
12/ So LPs - who almost never speak directly with CEOs/founders except on pre-arranged reference calls- don't get the real scoop. Thus perpetuating the myth that there is a lot of value add from minority investors.
13/ To clarify- I think there are some minority investors that are great and add value. USV, Canaan and Rose Park have been terrific for us. And we have had a horrible one that hurt the company meaningfully. Turns out the LPs never call me for references on that one though.
14/ To summarize - I think *minority* investors can still be very successful without doing a lot of those activities that were mentioned that are typically associated with board roles.
