Sunday, June 28, 2015

Getting The Most From Your #Startup Board

Getting The Most From Your #Startup Board

The formal “fiduciary” board comes to all successful startups sooner or later.Maybe a small 3 person Board at the seed stage. A five person Board when you close out an A round. It’s part and parcel of the price you pay as a founder for taking external capital from investor types like me. But also can and should be a key source of support, guidance, value creation and yes discipline and oversight too.
The thoughts that follow are my suggestions as to how a CEO can make her startup board meetings do what they are supposed to do. Meaning get the most value add for the CEO and the company from the Board members - not just meeting your governance obligations. Hopefully what I have to say is helpful. But there are many great resources available on this topic from other more experienced investors and entrepreneurs. A small selection is included at the end of this post.
Here goes with seven Board topics ... in (roughly) chronological order:
1. Before the meeting(s)
  • Set a meeting schedule for 12 months at a time and stick to it. You are coordinating the calendars of multiple busy people. So lock the dates in and save everyone the stress of scheduling ping pong.
  • Before each individual meeting send out your agenda and board deck (or write up if you prefer that format) no less than three days in advance of the meeting. Unless you give your Board members the time to get prepped then the meeting is ... a total and utter waste of everyone’s time.
 2. Meeting Hygiene and materials
  • Keep you meeting to no more than four hours max, ideally no more than three, otherwise you all lose focus and productivity collapses.
  • Smartphones checked in at the door and turned off. Yes, this is a tough one. People can’t be offline for more than a few hours without withdrawal symptoms, another reason to keep meetings short!
  • Minimize report out, maximize discussion. Limit the slides and keep them visual (charts/tables not verbal vomit). And, because your board members will have diligently reviewed the materials over the 3+ days you gave them (!), you don’t need to talk the slides to death, rather summarize and then ask for questions.
  • Don’t worry about fancy. Fancy is a waste of time. So simple text bullets. Drop tables and charts straight in from excel. And keep the format standard so each meeting requires a simple update not a rework.
  • Avoid confusion over multiple docs. Ideally have everything set up and sent out  in a single pdf.
  • Keep meeting minutes brief and send them out asap after the meeting.What was discussed (not a blow by blow of who said what) and crucially action points with assigned ownership.
  • If some anyone is remote, use video. There is simply no way a person participating in a lengthy meeting by phone will stay fully engaged for more than a (really) short period. It’s trivial these days to have the person live in the room on a screen. 
  • Consider having your law firm sit in on meetings and take the minutes.Good to have an third party in the room sometimes and often law firms see this as part of their job and don’t charge (extra) for it.
3. Meeting flow
  • Put the housekeeping issues upfront on your agenda and deal with them quickly. So things like approval of prior meeting minutes, approval of option grants.
  • Create high level “dashboards” that summarize your key business.These should be metrics that you actually track for business, not purely Board purposes. A few slides (the Nextview templates referred to below have some examples) can cover key financial, technology, product, sales, marketing and human capital details.
  • Some topics can merit more detail and individual slides. For example: an update of your YTD income statement with variance analysis and you 12 month budget; your cash flow and projected burn, hence timeline for your next fund raising; Sales goals and depending on business you pipeline with a probability weighted average rolling 12 month projection; planned key hires over the next few quarters; your product/technology roadmap with key releases over the next few quarters.
  • These business updates and your dashboards should repeat in the same format meeting to meeting. And because they are provided in advance and covered at the front of your meeting you can then  ...
  • ... allocate a significant proportion of your meeting time to one or two “deep dive” topics. These should be areas of significant importance where you want the Board to understand the issues and crucially get their advice on your plan action, and ultimately their buy in.
  • Include some senior staff for parts of the meeting as you get bigger. This can mean having a section of the meeting where you are joined by some or even all senior staff. Or this could include bringing in a few folks relevant to a deep dive topic. Erika Trautman CEO of Rapt Media points out that exposing more of her team to the Board can be very effective in helping keep senior staff on their toes and in touch with the big picture. As to when to do this Erika notes: “... it starts mattering when your leadership team has direct reports and you need to start streamlining communication across departments. We started when the team whole was about 15 people.”
  • Close the meeting with an “executive session”. This is where the Board members talk without the CEO present. Any concerns? How is the CEO doing? In this case is is important that a Director gives the CEO prompt and honest feedback about what the group discussed.
4. AOB
  • Most meeting agendas end with a catch all “Any Other Business” item. Around the time of the meeting that could be food (and drink)! By way of AOB for this post worth I note that many experienced Board members strongly recommend adding a purely social component to your Board meeting. Not at the time of the formal meeting itself but rather by combining the day of the meeting with a purely social dinner (night of, night before) or perhaps a group lunch.
5. About those Board votes … and surprises
  • Boards don’t make decisions based on dramatic votes cast around the table on the day of. In fact smart CEOs work out quickly that all key decisions are made BEFORE the meeting! That is because she takes the time to check in with each Board member before each meeting socializing any contentious issues. Hence making sure she knows where they stand and just as important they know where she is coming from and what her bright lines are.
  • As Ellie Wheeler of Greycroft pointed out to me: Surprises are bad. Bad surprises are the worst. The pre-meeting check in (and regular ongoing dialog) avoids the surprise bomb going off in the meeting. As Ellie noted this also a) erodes trust and can b) derail meetings. Not what you want.
6. Next steps after the meeting
  • Your Board members are not dispassionate observers. They need to be in the tank (your tank) with their scuba gear on. The CEO should have asks for them prepared plus be ready to assign homework tasks for after the Board meeting to Board members. These should be documented in the meeting minutes, so no one can claim ignorance later!
  • For the transparency minded consider minded consider cleaning up the Board deck (so taking out comp, option and other sensitive references) and circulating to the entire company and then commenting on them at the next all team standup. Board meetings are mysterious and scary things for your staff so make it an opportunity to reinforce your regular update on how things are going and where they are headed.
  • Save time and make your Board materials into an investor update. Don’t duplicate effort! Once you have a regular Board meeting schedule underway consider using your Board materials, again suitably edited and maybe with a short text discussion to go along with them, as the basis for you regular investor update.
7. And finally: Boards are not just about the meetings
  • As Ute Rother CEO of QSensei as a CEO “you run into problems on a daily basis and you should receive advice and feedback to solve them asap”. ie the best Boards operate as a resource in real time, not just for three hours every six to eight weeks.
You can also find me at @adamquinton 
PS Some additional Startup Board resources:

A Philosophy for Early Stage #Startup Due Diligence

A Philosophy for Early Stage #Startup Due Diligence

When early stage investors conduct their due diligence we all have our own set of criteria and benchmarks, some objective. Many not!  This can be rather frustrating for founders because a lot of the dialog with investors, as a result, is an inefficient one on one dialog.
But before getting to the details of due diligence that matter to "us" what is the appropriate stance for investors to adopt as they undertake due diligence? What you might call a philosophy of due diligence. As you will see for me that means treating the real risks takers with respect. (Hint: investor risks are, in the round, pretty modest.)
Personally I frame this by thinking about the different situations of the players on each side of the table. Those players being:
  • The buyer of the equity – that would be the angel or VC investor (e.g. me)
  • The seller of the equity – technically that would be the company although it amounts pretty much to the entrepreneur/founder
As I see it these two participants are engaged in activities with very different risk profiles: 

A. What does investing mean for the buyer? 

We know that any individual angel investment is very "risky" due to the power law of highly asymmetric returns involved in early stage investing. i.e. each individual investment has, other things being equal a high probability of total loss (maybe 40%), a high probability of only modest positive returns on cash invested (maybe another 40%) and that the outcomes that generate that attractive average annual returns come from the outsized gains on less than 20% of all investments. Indeed there is a power law within the power law. For example approx. the majority of ALL VC returns in 2012 came from one single investment, Facebook!
Across large sample sizes angel investing is an activity that generates returns in the +/-20%/year range. Indeed a Kauffman Foundation study pointed to 27%/year returns for angels investing in groups. That equates to returns that are pretty reasonably commensurate with the risk assumed ... on average. The Capital Asset Pricing Model gets it right!
Of course the finance 101 tells us that idiosyncratic/unsystematic risk can be mitigated by diversification. Admittedly the degree of diversification required that would reduce risk exposure largely to systematic (market) risk is impractical for all but a very few angels - as David S Rose, CEO of Gust and Chairman Emeritus of The New York Angels, noted in one of posts that make up his prolific Quora record.
Several studies and mathematical simulations have shown that it takes investing the same amount of money consistently into at least 20-25 companies before your returns begin to approach the typical return of over 20% for professional, active angel investors. 
This means that early stage investing is pretty damn risky in terms of your likely return profile. And, mathematically, we can see that with anything less than well into a double digit number of investments the most likely outcome for an angel investor is the loss of most all of your (could be my) capital! Ouch.
But this creates a paradox. Armed with that knowledge, any rational angel (VCs are somewhat different here because they are investing other people's money for the most part) should only invest money she/he can afford to lose – and lose totally. i.e. it can "all go to zero" but the angel's lifestyle is unchanged
Bottom Line: For the rational angel, while their is evident investment risk in this "asset class", there should be zero lifestyle risk ... assuming they only put money to work they can afford to say goodbye to without pain. (i.e. no need to cancel your next vacation, cut down on your restaurant visits or whatever!)

B. What does founding and taking outside investment mean for the seller?

The sellers, the entrepreneurs, are of course on the other side of these extremely asymmetric returns. For them the most likely outcome is … they lose "everything". So maybe all the savings they put in to bootstrap the company, maybe the money from the sale of their house, the years of sweat equity not to mention regular earnings from more mundane salaried employment forgone. So a big direct financial cost, indeed a big financial and life style opportunity cost.
Indeed, as Noam Wasserman points out in his excellent book The Founders Dilemmas, rational founders ... will not found! Because the evidence suggests they will be better off getting a salaried job somewhere.
Bottom Line: A pretty meaningful (and adverse) asymmetry for founders/entrepreneurs in terms of their most likely financial and lifestyle outcome.

The Take Away 

So given A+B what is the implication for all us investors as it relates to due diligence?

I think of it like this: 
As the investor you need to recognize who is taking the real risk here and treat them with commensurate RESPECT. And that is NOT you the investor. It is the amazing founder(s) you are backing.
That does not mean that you leave the entrepreneurs alone and don't impose on their time to conduct due diligence. Indeed the Kauffman study I cited above makes it clear that, for the investor, due diligence improves outcomes. Investors experienced better returns in the deals where they exercised more due diligence. Sixty-five percent of the exits with below-average time spent on due diligence reported a return that was less than their original investment. Losses occurred in only 45 percent of the deals where investors did above-average due diligence.
Rather, as a practical matter, RESPECT to me in this context means undertaking your investment due diligence with the following three thoughts top of mind: 
  • Being super sensitive to the entrepreneurs time and not sucking them into your own time wasting analysis paralysis that might be an interesting intellectual exercise for YOU but might kill their ability to execute their business. Founders have no staff, no admins to hunt stuff down for them; they have incomplete data; heck they probably aren’t drawing a salary.
  • Getting to YES on NO as quickly as you can. Set a deadline to get them an answer and stick to it. I am a firm believer in the Pareto Rule here. Namely that 20% of the time you spend gets you 80% of the answer. You can spend the other 80% of the time to get the final 20% of the answer. But it probably won't change.
  • Communication directly and honestly why your answer is NO, if that is where you end up. 
A key issue you face as an early stage investor doing due diligence is a question of balance. There is no right answer to that, but in my view a little (no, in this case a large amount of) RESPECT goes a long way.
You can also find me at @adamquinton 

Monday, June 1, 2015

Startup Pitch Deck Advice

Startup Pitch Deck Advice

I have been working with several founders recently on their fund raising decks. Having had to do some intense thinking around the subject, what investor side advice to I have to share? For founders on this journey, here are three general sets of resources I have found helpful and seven personal observations.

Three general resources

Pitch deck contents
There are plenty of amazing posts on the slides and info to include in a good pitch deck from the likes of PolarisCooley and Sequoia. Go to slideshare to find many more. And don't forget that if an investor is kind enough to give you advice on what they want to hear/see, then it probably makes sense to follow their advice. For example, ffVentures provides a handy list of what they expect to see, and The New York Angels sets out at length the list of "examination questions" to which a pitch is the de facto answer.
Sample pitch desks
Check out Pitchenvy to review a wide variety of pitch decks. For example, see theSquare pitch deck - 10 slides only! And in my view Reid Hoffman's description and commentary on Linkedin's Series B pitch deck as presented to Greylock is a true classic.
Pitch deck templates
Among others, the team at Nextview helpfully provides a pitch deck template. In fact they offer two: one a conversational format suitable for one or two people across the table and the other for a show  before a larger group.

Seven Personal Observations

Sorry folks, there is no right answer
OK, so as a founder this is the last thing you want to hear, but there are as many perspectives on what makes a good pitch as there are other battle hardened founders, pitch coaches and investors. In other words, there is no single "correct"answer to the question: "How do I make my pitch deck perfect?". For the founder I think this is another case of "take advice, don't follow advice." Or, for history buffs, as Napoleon put it: "I do not allow myself to be governed by advice". So my own advice about advice in this context is:  Don't blindly do what some so-called pitch expert says. Absorb inputs yes, calibrate what makes sense, yes, but  ultimately, do what feels right for and that you are comfortable delivering. 
Think about what the audience needs to know, not what you want to say
"Know your audience" is presenting 101. Always frame a pitch from the perspective of the investor. At its most basic, that means not spending too much time extolling your product and doing a demo. Demos are usually a bad idea, btw. The investor is not buying your product or service, the investor is (maybe!) buying your equity. That is not the same thing. And further to the "no right answer' point, there is no optimal deck because different investors need to know different things. So the more intel you have in advance about an investor's perspective or biases, the better. Then modify your delivery and move or add slides accordingly, tailoring the content to the audience.
Don't forget:  you are pitching you, too
In my experience, investing is more emotional than most people realize or for that matter want to believe. As Kathleen Utecht, now at Core Innovation Capital, noted at an About Astia event in New York, getting to the next stage - "Great pitch, let's set up a follow-up meeting to dig into the details” - requires the investor to cross some psychological barriers in order to believe in you and trust you. This depends as much or more on the energy and conviction of your delivery as the content of your slides. Don't get me wrong, the slides do have to convince investors there there is abig market out there for your killer solution to an urgent problem and you can execute like heck to get there. It’s about achieving a balance of substance and self.
Think story and narrative arc
Humans react to stories, so make the presentation less a procession of facts and more a story. The most powerful piece can be your creation story. Tell why you are doing what you are doing, how your rock star founding team came together around a shared vision, and why you are so passionate about your company. It can be risky, but opening a pitch - after the one-liner intro that encapsulates what you are doing - with your creation story can be very impactful. It allows you to share why you care, the strength of your domain expertise, your team's complementary skills, and more. The creation story demonstrates the differentiated passion and energy that investors look for and helps you grab and keep their attention. Crucially, it can make you much more memorable. Memorable matters.
Pitch decks are always a work in progress, not static
Maybe there is no perfect pitch deck for all time, but there can be a better one than the last time. I think smart founders keep tweaking their decks, evolving them based on feedback and also a sense of what did and didn't resonate with investors at the last meeting.
Most decks are too busy
A slideshare I like that captures this idea and takes on the issue of "verbal vomit" among other things is: You Suck at PowerPoint.
When pitching to a large angel group or at a pitch competition, treat the event as a business development meeting
You likely wouldn't make a non-investment ask if pitching one on one to a VC. But to a big group, in my view you can make an ask beyond money, "Does anyone here have a good contact on the XYZ team at ABC Corp?" On any first pitch, an angel group is statistically pretty unlikely to vote to continue to pursue an investment; they see so many. But individuals in the meeting may have great leads that they are willing to open up for you - the startup community is typically open to sharing contacts, even when an investor's wallet stays closed! So don't be totally tied to your deck and the single ask about money in this context!