Handling PR with VCs
I recently got a phone call from an entrepreneur whom I respect and who runs a company that I hope will do great things one day. He had pitched me in the past and I told him that for a variety of reasons his company was too early stage for me, but that I would happily keep track of their progress.
He started the call by telling me he had exciting news. He was about to be featured in a major US news magazine as one of their “hot” picks. I think my response surprised him, “Really? Is that why you called? To update me on your PR? That’s what you’ve got? PR? Save it for someone who cares! What progress have you made in your business?”
I don’t think that’s what he was expecting. Entrepreneurs get so used to friends and family congratulating them on their press coverage that they forget sometimes that this isn’t real. A positive news story means NOTHING about the core performance of your business. A good friend of mine was featured on the front cover of the LA Times business section with a glowing article. He had 2 weeks’ cash left in the bank and was facing massive layoffs or potentially bankruptcy.
Press doesn’t mean anything other than free advertising. Don’t get me wrong, I’m very pro PR but please see it for what it is and don’t think that smart or experienced people are going to see it as any more than it is either.
Our call recovered and we spent the rest of the time talking about the development of their management team and their product.
Only Hire A+ People Who Punch Above Their Weight Class
This is part of my ongoing posts on Startup Advice. There are people who tell startups that they should hire the most senior people that they can find. I’m not one of those. I believe that you should always hire people are are looking to “punch above their weight class,” which means to hire people who want to be one league above where they are today.
Don’t confuse this with the quality of the individual. I’m a big believer in only hiring A+ team members. I’ll explain both below. Please don’t also confuse this with whether a VC should invest in a CEO who’s done it before – that’s a given.
I’m talking about what most of you are tempted to do. I know because I have this chat all the time – including this morning. You’re stressed.
Montgomery & Co Projects Deal Volume to Grow by 167% in Just 2 Years with No End to Growth in Sight
On the third Wednesday of every month I co-chair a meeting called the SoCal VCA (venture capital alliance), which represents participants from all of the top venture capital firms in Southern California as well as prominent members of the Tech Coast Angels (TCA). We meet to discuss trends in the industry and to find ways to work together to help with SoCal deal syndication – somethings that happens automatically on Sand Hill Road in NorCal due to proximity.
We feature a prominent speaker at every event. This morning we heard from Jamie Montgomery, CEO of the venerable Montgomery & Co investment bank who is at the heart of what is going on in M&A for venture backed companies. They do around 7% of the total VC-backed deals in the US per year or just under 40 deals / year on average (present year excluded!)
I have to admit that I was greatly encouraged by Jamie’s outlook for venture backed companies, which if true will be a welcome relief for our industry.
This is part of my ongoing series Startup Advice. I wrote recently about the role of Advisory Boards in startups, which I expected to be a bit controversial. People love their advisers and I don’t blame them. It’s just that many companies waste equity on advisory boards, pick the wrong advisers or set up advisory boards with the wrong expectations.
Since I already attacked one sacred cow, let me come right back with my second: Board Observers. Before I get all the comments about how valuable your Board Observer was I’ll state this – sometimes they’re helpful or benign. But they can be a problem. If they’re so great, why are they not just Board Members? And what I mostly want to do is make entrepreneurs aware that they have nearly as much power as a real board member so you may have more people making decisions at board meeting than you thought you would. If you agree to have a board observer at least know what you’re signing up for.
In the first post in this three part series I described why I believe the VC market froze between September 2008 – April 2009. In the second post I argued that as of September 2009 the pace of VC investments has increased rapidly (at least for software / Internet investments – the only sector on which I’m competent to comment), but only for those remaining VCs who have new enough funds and aren’t plagued by “the triage problem.” This is a direct result of innovation around the iPhone / mobile computing, Facebook / Social Networks and Twitter (as distinct from Social Networks). It is also a result of pent-up demand.
In the following post I argue that this increased pace may be temporary. I obviously don’t have a crystal ball so the economy could fare better than my gut, but here’s why I’m cautious for some time in 2010 or early 2011:
Why is the future still so unpredictable?