Getting Chastised by an Investor

Several years ago, I was part of a team that did a slightly leveraged management buyout of a division of a larger company.  The deal was a relatively straightforward acquisition of all the assets, licenses, rights and so forth of the division for about $55M.  Roughly $35M came from a single VC fund.  Another $15M was in bank debt and the final $5M came from a small fund that an investment bank had for such deals.  At the close of the deal, the larger VC took a board seat, but the investment banker, at my urging, declined a seat at the table.

I was having lunch with the investment banker that did the deal (who is now the President and CEO of the investment bank) the other day.  The conversation was cordial enough until he brought up the fact that he felt that he was never kept in the loop about what was going on inside the company and was constantly surprised - mostly negatively – with news from and about the company.  He reminded me that at one point, the bank had threatened to pull the company’s loan.  Something that he did not learn about until very late in the process.

Needless to say, I was exceedingly embarrassed.  As hypocritical as it sounds from this situation, I pride myself in my active communication with all parties involved, regardless of the level of their involvement.  It’s not even like the guy was an asshole or anything.  In fact, he’s a terrific guy who would work to help me deal with any issues in a calm and straightforward manner . . . if given the chance.  His advice was always good and, even more important, it was given well.  Gulp!  I screwed up.  Further, I’m sure I’ve done this type of thing many times, too.  He’s just the first guy who thought it was worthwhile to say something about it.

So, what did I do wrong.  After a few days of reflection, it was clear that I made several mistakes.

1. My belief that I’m great communicator prevented me from seeing that I’m not.  Well, not always anyway.  Damn the ego!
2. I treated investors sitting at the table (the Board table, that is), different from investors less actively involved.
3. I forgot that my pool of mentors and advisors extended beyond the people I interact with on a day-to-day basis.
4. Over time, my ignorance of the problem became a permanent mental block as we took the company public, eventually selling it, and everyone made money.  Success clouds the recognition and memory of failure.

Doh!  It’s really painful rewarding  upsetting great to have a good kick in the ass once in a while to remind me that I still don’t really know anything.

Related posts:

1. Show Me the Money
2. Ignoring Red Flags in Investing
3. Angel Investing