January 27, 2012
I got the crap beat out of me yesterday by my partners. It was painful, but it was great. They saved me from making what may well have proven to be a major mistake, and in the process, I think we’ve really helped a talented team of entrepreneurs.
Those who know me well have likely heard me say that a partnership is a terrible way to run a business. But it’s the way almost everybody in this industry is structured. There’s only a handful of firms out there who have a named CEO (VantagePoint comes to mind). Amongst the vast majority that are partnerships, a scarce few are run with true “managing partners” who play CEO-type roles.
Talk to any partner at a typical firm and they’ll tell you that partnerships are amongst the sharpest of double-edged swords.
- Edge 1: It’s great to have a group of smart minds around the table. It can be terrifically valuable to have the collection of experiences and perspectives, the added Rolodex power, and the critical minds that force intellectual honesty in investment decision-making.
- Edge 2: It can also lead to very inefficient decision-making, get people bogged down in politics, and lead non-deal things to fall through the cracks due to lack of clarity around responsibilities.
While there are times when the negative edge of that sword leaves me wishing I could be a sole proprietor, “superangel” style investor with no one to answer to but my investors, those moments are far less frequent than the reminders of why the good edge of that sword can be so powerful.
Yesterday was one of those. I brought Jane, an entrepreneur with whom I’d been working for about a month in to meet my partners. I was quite excited about her business, and felt like we were likely pretty close to offering her a term sheet.
I expected that it would go like these meetings most often do when one of us feels that way. We’d spend an hour hearing her story and digging deep into the business. Then she’d leave and we’d share reactions, thoughts, and concerns. My partners would at some point (maybe immediately) express that they generally share my enthusiasm for the opportunity, and we’d come up with a list of outstanding issues and questions that I need to address before we’d be comfortable moving ahead with an investment.
We had what felt like a pretty good meeting yesterday, but I knew that Jane hadn’t been on top of her game. The story was a little disjointed, the go to market strategy not clear enough. But still, I figured Jane would leave and I’d help clarify and reframe some stuff and we’d be good to go.
One of them said to me, “it’s critical to this partnership that we’re open and honest, right?” I agreed. “Well, I like the concept they’re trying to get after, but I’m not sure I liked a single thing about how they were going about it.” And he proceeded to very constructively bang through a list of lethal criticisms. My other partner was right there with him – adding, amplifying, and supplementing the litany of body blows the business was taking.
I was disappointed and a little defensive at first. Then I really heard what they were getting at, and I saw that they were absolutely right. I had gotten over-excited by the combination of macro opportunity – my partners agreed with me on that point – and terrific people whom I thought would be great to work with. It’s a great combination, for sure, but that excitement led me to ignore the fact that these guys hadn’t yet come close to adequately connecting the dots on just how they were going to turn this vision into a real business. It was very quickly clear to me that we should not invest in this business as currently conceived.
I feel great about the outcome. The partnership really worked – I got the hard questions I needed to hear, and which it turned out I couldn’t answer. Heck, if I was a sole proprietor Super Angel, I might have just risked flushing a half million bucks on a not-ready-for-prime-time idea.
But stopping what might have been a misguided investment decision is less than half of it. Even better is that in the 24 hours since the meeting I’ve had three conversations with Jane. They’ve been incredibly productive and satisfying conversations, and my enthusiasm for her has only grown. Jane has effectively countered some of my criticisms, but she’s also realizing that much of what Mark and Russ were getting at are critically important issues, and they have her completely rethinking some elements of her business.
While Jane no doubt would have preferred to walk out of our conference room yesterday with a term sheet, I think she actually believes today that this process is getting her business turned in some exciting and important new directions.
I don’t know where this is going to lead, but I know I’m looking forward to working with her on it. It may be that we never get there, but I hope what happens is that Jane and I spend the coming weeks digging in together, collaborating as she refines and improves the business model. If nothing else, that process is going to lead us to have a much better understanding of each other, and a terrific feel for what it would be like to work together. If we do decide to work together, we’ll both have an exponentially greater level of conviction about the relationship than we otherwise would have. In today’s hurried and frenzied deal environment, that’s all too rare.