Entrepreneurial Leadership and Management . . . and Other Stuff


Still a Father, But Not a “Daddy” Any More

When recently watching a father play with his small child, it occurred to me that while I’ll always be a father and hope to remain a “dad,” I’m not a “daddy” any more and I kinda miss that. My kids will turn 20 and 18 this year. They’re adults. They rely on me still, of course, but don’t really need me. No more seeking protection by my side; arms thrown skyward indicating a need to be picked up or climbing into bed between my wife and me during a thunderstorm. Their love remains unconditional, but it’s much less overt and obvious than it used to be. They have real, established lives that don’t involve me and, in some sense are more important than the decreasing portion of their lives they share with their father.

Nothing too sad, here. This is how happy and successful lives as parents work. I’m really, really lucky. My kids have grown in to terrific people and I have a blast spending time with them. I love them and I’m tremendously proud of both of them. My relationship with them is different now, but in its own way, it’s just as rewarding as it was at any time of our lives together. I’m going to work at remaining “dad” to them and relish every minute of it. Someday – hopefully a while from now – the need I have to be “daddy” will be fulfilled when I become a grandparent (yikes!).

For all of you that are still “daddies,” have a blast on Daddy’s Day today. Personally, I’m going to enjoy my Dad’s Day.

 June 20th, 2010  
 Misc Thoughts  

The 2010 Pan-Mass Challenge

Pan-Mass Challenge The Pan-Massachusetts Challenge (Pan-Mass Challenge or just PMC) is a charitable, 180 mile, 2-day bike ride across the state of Massachusetts that raises money for cancer research and treatment at the Dana-Farber Cancer Institute through its Jimmy Fund.  The ride was the first fundraising bike-a-thon in the country, starting in 1980.  Since then, over 55,000 riders and 33,000 support volunteers have made it one of the largest and most successful athletic charitable events in the world, raising $270M for cancer research.  Last year, 100% of the $30M raised was given to the charity (making up 50% of the Jimmy Fund’s annual revenue) made up of donations from over 200,000 individual contributions.  This year’s ride will take place on August 7th and 8th with over 5,000 riders and almost 3,000 support volunteers (yeah, it’s big) along its several routes.  This year represents my seventh time participating in this great event.

Last year I rode on a special route, 342 miles across Italy. This year I’m being a bit less ambitious and am doing one of the standard PMC routes without leaving the country or even the state. Unlike previous years, where I’d have about 1,500 miles of training under my belt by mid-June, a knee problem has kept me off the bike almost entirely for the last nine months. I’ve only ridden about 100 miles at this point. That’s gonna make the PMC a bit of a challenge this year and it might mean a lot of time in the saddle during the ride. I feel some bond with the effort, though, and want to make the best of it.

Last year, my aunt died of cancer and my mother, a cancer survivor several times over passed away. Earlier this year, my wife’s aunt died of cancer as well. Sadly, my story is not all that different from many others’ – most of us have been touched by the horrible disease.

While I think of myself as a generous donor to many causes, sometimes I need a kick in the pants to remind myself to write a check.  If you’re like me, please feel free to treat this as your gentle nudge.  While I’d appreciate your support and donation for my ride this year, supporting me isn’t what’s important.  If you’re financially able, supporting a worthy cause like cancer care and research and a great organization like the Jimmy Fund is.  So, sponsorship of my ride is less important than sponsorship of these organizations and efforts – financially or otherwise.

If you’re interested in donating to Dana Farber and this seems like a reasonable way of doing it, you can do it online at this web page or click on the PMC logo to the left.  My PMC Gift ID is: wh0028 if you access the PMC web site another way. Of course, you can make the donation directly to Dana Farber or to the PMC.

No obligation and donations can be made anonymously, if you prefer.  Thanks for even reading this far and if you choose to donate, thanks in advance for your support.

 June 15th, 2010  

The Role of the Independent Director

For the purposes of this post, I’m referring to a member of the board of directors of a company that does:

  • Offer uninfluenced (by money, power or competition) opinions regarding the company’s strategy, tactics and overall execution decisions.
  • Bring related wisdom gained through experience in the market, product, service, management or company structure.
  • Actively stay informed about what the company is doing, how it’s doing it and how well things are going.
  • Make themselves available to the CEO when needed.
  • Make decisions that are in the best interest of the company, not necessarily in its board or its management team (when these differ).
  • Show up at the vast majority of board meetings. This should state all of them, but stuff happens.

The independent director does not:

  • Have any conflicts of interest with the company, including board participation in a competing company.
  • Own a substantial percentage of the company (through any means including investment) that may cause a bias in decision-making.
  • Have a job inside the company.

That’s actually the simplistic list, biased toward the role of the independent director in a small, private company or startup. The list for public company directors is much longer, more detailed and has a lot of legalese associated with it to cover the asses of the respective company and director.

I’ve been a director of 16 different companies so far in my life. I think I was a good director on most of those boards and I knew that I sucked on at least a couple of them. Several of the companies were publicly traded, but the vast majority were private, venture-backed companies. On those boards, I was (and still am at three companies) usually the only “independent” director. I put quotes around independent because I’m not sure that it’s possible to completely follow the rules I laid out above. As a board member of a small company, I usually get stock options or restricted stock in payment for my services and in larger or publicly traded companies, I get compensated with cash as well. Sometimes, I’m also a small investor in the company. Does that influence my decisions? Well, yes, sometimes it does. I hope and believe that when that happens, though, I’m still working in the best interest of the shareholders – the group that the board works for in the first place.

The boards of small, venture-backed companies actually vary little these days in my experience. There is usually one insider, almost always the CEO (sometimes, there are two – a founder and a CEO when the CEO is not a member of the founding team); one or more VCs; and one or more mutually agreed upon outsiders (sometimes there is more than one, but it’s hard to find qualified directors – in my experience having only one is the norm).

Like all directors, the independent director should help guide the company by taking a participative role in strategy setting; help the management team make high-level financial decisions; contribute to the setting of overall direction; determine compensation when appropriate; ask loads of probing questions; and advise the CEO when asked as well as, as needed, when not asked.

Most board-level decisions are made with reasonable thought and discussion. They are rarely . . . rarely a result of a non-unanimous vote (they are, obviously, always the result of a vote, it’s just usually unanimous). That doesn’t mean that disagreements don’t occur, it just means that reasonable people have a desire to work through things and to try and find consensus – before they vote on it. This is where the independent director has another, somewhat unique role on a board. That of the mediator or synthesizer of the parochial opinions of the insiders. That is, those that are employed by or heavily invested in the company. Often, this means bridging the gap between the management team and the investors of the company. Once in a while, it even means trying to find common ground between investors.

As an independent director, I find myself assuming this role a few times a year when things aren’t going well inside companies and once in a while when things are going according to plan or better. It’s time consuming because no party wants an arbiter. They just want it their way. At times, I feel like the Secretary of State working with Middle East factions. You get the idea. It’s enjoyable and frustrating. When it works out – which it almost always does because all parties want it to – it’s a lot of fun. The process isn’t always pretty, though.

As a CEO, I really appreciated the independent directors that sat on my boards. Even when their energy was directed at talking me off the ledge (i.e. I was wrong and needed to be shown the path), someone stepping in, holding my hand and offering me a different light to see the situation with was a huge help. I really valued having the person and role on my board. Similarly, I knew the independent director was working with other insiders to try to find common ground when he/she felt that the management team was in the right.

So, there are two lessons here. For those interested in being an independent director, be forewarned, you have a unique role to fill in addition to the normal directorship role. It’s an opportunity and responsibility in my opinion. For CEOs, recognizing the value that an independent director brings to the table should help you recruit the right person to fill that role and to, perhaps, think through the value of such a person on your board when it is being established.

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 June 9th, 2010  

Angel Investing

After yesterday’s phenomenal Angel Boot Camp in Cambridge (MA), I’ve been thinking about a long overdue post on the topic. I did my first angel investment in 1994 and I’m now in the process of wrapping up my 31st (individually, that is, not as part of a fund) – it’s also my third in the past six months. I’ve probably done about 30 more as a limited partner in seed funds and incubators along the way as well. All in, that probably makes me a second tier angel investor, at least in terms of deals done. Third tier if you count the “super angels” who have knocked off hundreds of deals in shorter periods of time. That said, I was recently “voted” as one of Boston’s best angel investors – I think that say’s more about Boston’s investment community than it does about me, I’m afraid.

I invest because I have a blast doing it. It’s about 75% of the fun of running the company yourself with only 5% of the stress. I get to meet smart, energetic people with great visions and boundless energy. It keeps my head in the game, and when I can add value (in addition to money) to help a startup weave it’s way through product, market and management mine fields, I avoid feeling like the least productive member of society for yet one more day.

The difference between a second tier investor like me and the first tier guys (other than brains and talent), is that the first tier investors actually work at finding investments. I’m, dangerously (see below), more passive about it, reacting to the investment opportunities that come to me. I get to see my fair share of of potential deals, but by selecting from a smaller set I not only miss loads of opportunities, but my comparative perspective is likely skewed – the best companies I see may be among the worst potential investments out there.

Fortunately, I’ve been moderately successful with this type of investing. A little over one third of my investments have provided reasonable returns over time with a few big successes doing most of the financial heaving lifting for my “fund.” While my 300 foot yacht with accessory submarine and helicopter remains on the wish list for affordability reasons, I haven’t had much trouble putting food on the table.

While I don’t have any absolutes when it comes to investing, I do have some guidelines that I loosely attempt to adhere to, at least when they’re convenient. Some of them are general and are similar to those used by many angel investors. Others are more personal and, for one reason or another, I’ve picked up over time as a result of my investment experiences.

The general guidelines:

  • “Drill more holes” – I once heard the CEO of Shell Oil speaking with analysts at a conference. When asked how Shell was going to diversify in the coming year, the CEO responded with the statement, “we’re going to drill more holes.” Investing in many companies is the only way to balance the risks of markets, teams and competition. Maintain a relatively large portfolio.
  • Invest in stuff you understand – bright shining objects attract attention (“we have the basis for a cure for cancer”), but the more you know, the less shiny things often look. If you can’t judge the team, market and product relatively thoroughly, it’s probably not a wise investment.
  • Keep some powder dry for subsequent rounds – while the best return in a successful investment comes from investing earlier, holding some cash back to see how the company does and to play alongside any institutional money that comes into the company mitigates some risk and ensures you’re playing on the same terms as the rest of the investors.
  • Everything looks good during the honeymoon – don’t make assumptions that problems you see will go away or that things, in general will get magically better. They won’t. While making an investment, you’re probably seeing the company in its best light. Things will likely get worse before they get better.

My Personal Guidelines:

  • I don’t like convertible debt – the investor takes on an inordinate amount of risk with a convertible note which he/she is generally not compensated for. Think about a note holder who waits 18 months before a conversion is triggered with an equity investment at a higher valuation. For a small percentage (8-10%), the “investor” takes all the risk in funding the company without participating in most of the potential uptick in valuation. Some strange debt instruments are being created now to fill this and other holes, but for all their complexity, the company should just do a seed round.
  • Team over idea – Ideas are cool, but quality teams are cooler. A great team can make a mediocre idea soar or morph the idea into a better one over time. Often, mediocre teams struggle to create success even starting with a great idea. I have to believe that the team can knock the ball out of the park. Only then do I consider the idea itself. As a corollary to this, I need to trust the CEO. Surprisingly, I find this to be a real issue from time to time.
  • There has to be a grownup involved – for all the energy, drive, brains and talent in most startups, there’s often a dearth of wisdom. Someone needs to be involved to provide it and be a sounding board for the startup team. This person or these people, should be on the company’s Board of Directors (check out Every Company Needs a Board of Directors – Startups Too). They can come from inside or outside of the investor group (inside preferable). If I’m the best qualified person for the job, I’ll step up. Usually, though, it’s someone else involved.
  • I hate leading a round – someone has to be in charge of representing the investors in the seed round. Negotiating the fine points of the deal, working with lawyers, getting everything signed, communicating every step of the way, etc. I hate doing it, but once in a while, I draw the short straw. I like investing along side seed or angel funds as a result. They’re pros and do it all the time. It’s not even heavy lifting for them. Most importantly, they’ll do all the herding of the investment cats required. It’s often a real pain in the ass.
  • You can’t and don’t even want to try to tie up every loose end – as much as you’d like everything in the investment to be taken care of, completely thought out and totally bulletproof, it ain’t gonna happen. Stuff is going to change along the way anyway.  The investor and founding team need to feel like they will make adjustments together as warranted.
  • Friend’s before business – this is a personal rule of mine that have broken more than once. Fortunately, it’s never backfired on me. I take both my friendships and my involvement with companies seriously. As such, the potential for conflict is high if I mix them – things never go the way you plan. There are always going to be situations in which the investor needs to support either the company or the management team. Can you support the company over your friend? Your friend over the company? Why even put yourself in that position?

This is hardly a definitive list of any kind, of course, but hopefully it’s a starting point for anyone wanting to get involved in angel investing and for anyone looking for an angel investment. Keep in mind that none of these guidelines have anything to do with the actually business criteria used in selecting an investment. I’ll leave that for another post.

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 June 2nd, 2010  
 Investing, Startups