How to Get the Most from Your Board | Summary and Q&A

TL;DR

Learn how to work and collaborate with your venture investor, building a long-term relationship to achieve common goals.

Key Insights

• 💪 Building a strong relationship with your investor is essential for long-term success.
• 🥳 Understanding the incentives of both parties helps navigate challenging situations.
• ❓ Clear communication and transparency are vital in the entrepreneur-investor relationship.
• 🧑‍🏭 In an acquisition, consider factors like economic interest, future business prospects, and retention bonuses for employees.
• 🍭 Investment banks may have conflicts of interest between their clients, but their role is crucial in preparing for an IPO.
• 🤪 The board's role shifts after going public, focusing more on governance and compliance activities.
• 🥅 Entrepreneurs should prioritize understanding their investor's incentives and goals.

Transcript

hi welcome to the a 16z youtube channel I'm Frank Chen today I'm here with Scott Cooper and we are now in part 3 of 3 of our demystifying Silicon Valley this part is all about living with your investor as Scott will point out the average length of time that you will work with a venture investor 8 10 12 years is longer than the average marriage terr... Read More

Questions & Answers

Q: What qualities should I look for in a venture investor?

Look for an investor who can act as a coach, mentor, and sounding board, providing guidance on strategic decisions and accelerating the growth of your business.

Q: How should I handle the risk of being fired by my investor as the CEO?

Transparency and trust are crucial. While sharing vulnerabilities may be risky, a good investor will value open and honest communication and work towards resolving issues rather than punishing you.

Q: How do I manage conflicting interests among different investors during an acquisition?

Understand the incentives of each investor and communicate openly about their goals. Consider a waterfall analysis to evaluate the outcomes for different shareholders and aim for consensus among the stakeholders.

Q: What should I consider when going through a down round or bridge financing?

Have an open and honest discussion with your investor about the current situation. Explore options like winding down the company in a reasonable manner or a recapitalization to reset the company for potential new investors.

Summary

In this video, Frank Chen and Scott Cooper discuss the relationship between entrepreneurs and venture investors. They cover topics such as what entrepreneurs should look for in an investor, the importance of transparency and trust, managing situations where the economic interests of investors diverge, and advice for different scenarios including tough times, acquisition, and going public.

Questions & Answers

Q: What are the big things entrepreneurs look for in their board members/investors?

Entrepreneurs want board members who can provide coaching, mentorship, and strategic decision-making guidance. They also hope for value from investors that can help accelerate the growth of the business through customer introductions, operational expertise, and navigating the PR and marketing world.

Q: How should entrepreneurs handle the tension between wanting advice from their board members and the fear of being fired?

Entrepreneurs need to build a relationship with their board members where they feel comfortable sharing enough information to get advice and help. While there is a risk of vulnerability, most VCs are rational and understand that sharing weaknesses or mistakes does not mean punishment or job loss.

Q: How should entrepreneurs manage situations where the economic interests of investors differ, such as in a bridge round or acquisition?

In situations where investors have different economic interests, it is important for entrepreneurs to understand the incentives and timeframes of everyone involved. Open and honest discussions must be held to find common ground and determine the best course of action that aligns with the long-term goals of the business.

Q: What should entrepreneurs consider when going through an acquisition?

Entrepreneurs should consider the economic interest they will receive from the acquisition, whether it is in the form of cash or stock. They should also assess the go-forward business and what the acquisition means for employees. Retention bonuses and discussions on terms of stock options should be part of the negotiation process.

Q: What are some potential conflicts that arise when working with an investment bank for an IPO?

Investment banks have the dual role of representing the company going public and the institutional investors buying shares. This can create conflicts of interest when determining the IPO price, as the company wants a high price for less dilution while the investors want a lower price for more upside. However, conflicts are often a result of the difficulty in accurately forecasting demand and pricing for the IPO.

Takeaways

The most important takeaway from this video series is for entrepreneurs to understand their investors and build strong relationships with them. It is crucial to be transparent and have open discussions about conflicting interests. The success of the business depends on the alignment and cooperation between entrepreneurs and investors.

Summary & Key Takeaways

• Understand what you want from your investor, including their role as a coach, mentor, and steward of corporate governance.

• Look for value beyond just being a board member, such as making customer introductions and providing guidance on strategic decisions.

• Transparency and trust are important in your relationship with your investor, even though they have the power to fire you as the CEO.