Venture Capital

When a venture capitalist invests into a company it is because he or she targets a financial benefit that would eventually be reaped on exit. Simultaneously, the venture capitalists will take on investment risk which is variable and governed by the investment policies of the venture capital firm and the personal risk appetite of the venture capitalist.

Personally, there are two schools of thoughts to my risk element. First, I take on risk in a deal where the market dynamics are sufficiently large enough that a mediocre management can still plough profits and deliver a significant market share which makes the company attractive to buyers. Second, on a safer plane, i only want to bet on a management with a good track record because that management can mitigate risk by manoeuvring through tough times, adding value to the company and providing me the planned exit. However, i want to point out that my risk appetite (as with all venture capitalist) is tapered by how much money i would invest into the company and how i condition the investment structure and terms.

A “good management” for investment to me means that the deal is with a company that has strong leadership and executable ability in the management team. I discovered that good leaders sometimes hardly manage the company effectively and yet without leadership a company cannot create the kind of growth required to expand its financial value. It is imperative to have both the ability to manage the day to day nuance that goes on in the company and leadership to drive growth.

In retrospect having spent time with many CEOs, the CEO role is as the nucleus of the company and he or she bears the primary responsibility for creating a clear strategic vision for the company and translating that vision into an executable action oriented business. A CEO sets the tone for all other employees and must therefore have the ability to instil a performance driven culture from top to bottom to be successful. Plus, a CEO must be able to seamlessly accomplish a wide range of responsibilities and tasks while overseeing day to day operations, supervising employees and my personal favourite, ensuring the financial health of the company.

That in a nutshell is what we expect a CEO to be effectively doing and venture capital professionals do value proven CEOs with successful track records who have demonstrated execution skills across the broad range of activities. This blog posting is part of a series and it attempts to describe what I as venture capitalist expect from a CEO of a company and share some valuable insights of managing a company. Why? Because a venture capitalist true value is not in funding ringgits but in developing a company for exit.

Over the years, one clear distinction i have noticed is that great communicators tend to be excellent CEOs as they are easier to follow – simply because employees know where they are going, why they want to get there and what they have to do to move towards the goal. CEO’s whose company have an exciting and meaningful vision, as well as a clearly defined direction, engage their employee’s hearts as well as their minds. This is important to a company at the early stage of growth because employees who express wilful desire to work for a directional cause make progress and a CEO needs to ignite and sustain that motivation, which isn’t easy.

Sustaining passion is tough but achievable if you as a CEO recognize employee strengths and weakness. You need to be promoting talented individuals who can handle increased responsibilities and parting with individuals who do not meet expectations. Shed away favouritism, it does not benefit you.

Often as CEO you may have to pick up the slack or delegate to a person who can get the job done when someone is not able to complete a task or cannot ensure successful completion. One of the most common problems you would face when leading a company is that you would have to act decisively against your employees that perform poorly that would eventually threaten the performance and deliverables expected by your investors.

Most CEOs i have worked with balk at this and delay making the decision that ultimately reflects poorly at their ability in commanding leadership. You must always be commanding leadership and not be subservient to it as you are CEO. Do not be fooled into thinking that you need to be popular; making decisions is status quo for the job. If possible, never put yourself in a position where you would have to feel intimidated when faced with adversity and always sustain a position that gives you options, which appears when you remain neutral to the situation.

Your leadership as CEO is imperative and you need to become a present and visible figure among employees, making yourself available for day to day interactions, advice and problem solving. When CEOs are insecure, the most obvious symptoms are self-aggrandizement; a high need for control; poor listening skills and impatience, all of which only make those who work for you feel devalued. In reality, the more genuinely you hold the value of someone you manage/lead the more focus and positive energy that person will bring to the task at hand. Remember this and develop a competent management to manage the company.

Your competent management would then be able to identify where operational and financial improvements are needed and then you must take accountability to follow through and set the pace in the company. You as a CEO need to utilize a disciplined process that ensures accurate and transparent financial reporting. Simultaneously, you need to effectively prioritize, knowing how, when and to whom to delegate tasks without overloading employees and company resources.

A hinge to the game is that as the entrepreneur CEO, you need to know whom to listen to and when to listen, and then - the most important thing -which questions to ask. Failure to be honest with your self is disastrous in an entrepreneurial company where the risk-reward stakes are high and you can’t afford to make mistakes because you do not have the time and resources needed to recover.

Sometimes, CEO listens only to what they want to hear because they are afraid of the truth, a sort of ‘happy ears’ syndrome where CEO only picks up words that ring a bell to his or her own cause. In other cases, it’s because CEO is arrogant and will not accept criticism or suggestions from other people, demanding loyalty from their subordinates. That really is seeding failure.

Most venture capitalist would have a service agreement with the CEO and that document could contain financial deliverable clauses among others. A venture capitalist always aims to protect the investment and will not hesitate to replace you if you fail to deliver attractive results while navigating the ups and downs of the business cycle. What you as a CEO need to understand is that a great idea won’t make it without competent management.

As CEO, you must always be aware of what is going on in the company. Often a company has two dynamics, internal and external. The internal dynamics are caused by action of the employees and shareholders of the company. The external is the portrayal of the company by the CEO to the world at large. You will always have control of the external if you have the ability to be clear and careful of your choice of words- never promise what you may be able deliver- only what you are absolutely confident to deliver.

The internal dynamics on the other hand is where most of your effort would be focussed on. The only way CEOs can know what is going on in the company is by communicating in person. Many CEOs circumvent the “communication problem” by using electronic communication to replace face-to-face discussions, often in the belief that it avoids conflict and gets things done quicker. As a CEO, you should always prefer face-to-face communication and always check that the intended message has been received. Successful CEOs constantly encourage two-way communication and are excellent attentive listeners. Believe me when i state that there is more to be gained by listening than talking.

Don’t let communication fail you and don’t make excuses that there isn’t enough time to explain things properly or to check that you as CEO have been understood; or simply assume that since the message you’re giving is clear enough to you, it should be clear enough to everyone else. That unfortunately, isn’t always the case and you need to be prepared to go that extra mile and get a clear concise message through if you want results. What you accomplish in managing the internal issues of the company reflects back to your reputation as portrayed to the external world. This is your personal value add and it takes you one level up as good reputation is something you cannot buy, it must be earned.

If as a CEO you can distinguish the delicate balance between confidence and ego; knowing your limitations, and ask for help when a task is simply too difficult (another reason to have a competent management team) you have a good shot of making it.

In reflection and observing entrepreneurs over the years, one marked distinction i have observed is that hard work alone does not bring success but it is the intensity of the hours that makes the difference. Make every second count as time is against you to deliver to the expectations of your investors.