Big Red Car here. Starting to work on finding an ark contractor with all the rain in the ATX — could just be me cause we need the rain, I guess.
So yesterday, The Boss shares some thoughts on how CEOs should protect their flanks (jobs really) and The Boss gets a couple of emails from some venture capital friends of his. [Yeah, I know, makes me a bit uneasy myself and I’m just a Big Red Car.]
One writes something like this:
“Jeff, you always take up for the CEOs and rarely look at things from the vantage point of the VCs. You should be more balanced in your view of things.”
Duh, The Boss writes about and looks at things almost exclusively from the perspective of CEOs. The guy was a CEO for over 33 years and in his coaching business only coaches CEOs and other C suite dwellers. No truth revealed there, friends. The Boss is not working for the VCs.
He goes on to write something like this:
“You are totally unsympathetic to the difficulties of developing executive talent. We recently funded a third of a $1.5MM raw startup deal (first time founder) and it has become woefully apparent the CEO is not up to the job. We need to replace the CEO and as a convertible note holder, we have limited means to do that.”
The Boss points out to the investor that he has selected an investment methodology in which he is a lender and not a shareholder or a Boardmember. As a lender, he has no ability to impact management unless the borrower is in default of the loan covenants which he is not. [Look in the mirror, dude, sayeth the Big Red Car. Sorry, couldn’t help myself.]
The Boss is quick to point out that every early stage investment is a bet on the jockey, horse and course. Work through that analogy yourself. Further when the investment methodology is a convertible note — often in reaction to an inability to price the value of the company on a pre-money basis — the relationship is that of a lender and a borrower and not that of a shareholder in a company.
This relationship has certain advantages and disadvantages. Welcome to one of the disadvantages, you cannot really legally impact the leadership of the company as long as the note is not in default. Harsh. Reality. What you bargained for.
In this instance, The Boss knows the founder/CEO and believes him to be amenable to good advice and guidance. He does not welcome bullying or threats. He does not have to take a tongue lashing just because one is offered or available. VCs can be rightfully accused of inventorying a few too many criticisms at times, maybe not?
CEOs should know the nature of their funding relationship. They should operate within the relationship and respect everyone’s role. They should also be wise enough to take constructive criticism when it is offered in good faith and through proper channels.
VCs should know the nature of their funding relationship. They should operate within the relationship and respect everyone’s role. They should not overplay their hand and they should offer constructive criticism only when it is welcome and they have offered it in a spirit of genuine cooperation.
Feedback is the breakfast of champions, make it so.