How to Figure Out if You Want to Invest

Board Meetings for venture-backed companies are built around powerpoint presentations. In the very early stages of any investment cycle these presentations are filled with a lot of information about product development, market positioning, new initiatives, etc. It is a very wide range of information and it seems like every Company (no matter which one) likes to prepare a presentation with about forty pages. Creation of these slide decks must be very time consuming on their authors. Investors listen patiently as each page is reviewed.

As time passes, one of two things generally happens: (a) the presentations seem to stay around forty pages or (b) they shrink to around eleven pages. What is going on? What does this represent?

Several yeas ago I was attending graduation ceremonies of a prominent Virginia University. We were outdoors at a post-ceremony picnic and I was standing among several academics. A young girl with a bread basket offered bread sticks to attendees and each of us declined. She took on a very sad facial expression. In reaction, I had a puzzled look on my face which prompted one of the academics to comment (he was an economics professor)…”In a capitalist society we pride ourselves on our ability to sell…she is sad because she had no takers…” This young lady was about 8 years old and had already been infected with the trappings of the US version of the free market system…..yikes. This obviously stayed with me.

Once sales start to take off at an early-stage company…the slide deck starts to shrink…sales is all we (venture investors) want to talk about. If you show me a forty-page Board presentation (and hide the sales figures) I have a pretty good idea of where this company stands. If you tell me how many forty-page presentations in a row the Board has seen…I have a good sense of what my anxiety level should be given the current length of my investment…I start to get queasy when I see too many of these.…...We all want the eleven-page presentation that rarely speaks of anything other than current bookings, pipeline, sales process, territorial expansion, new customers, new markets, etc. This type of Board meeting lasts about forty-five minutes.

So next time you are trying to figure out if you are wanting to invest in a venture fund…ask the general partner what the average number of pages is in Board Presentations across his existing portfolio…this should tell you how he is doing…if the average is “thirty-eight” and the fund is several years old…run away…

A Surprisingly Effective Analogy

Back in my early days at this firm (I started in 1991) I went to my employers and suggested that we should install this thing called a Novell Network. It was not an inexpensive proposition and the powers that be made me perform a cost/benefit analysis before they would write a check. The benefits I contemplated were (i) eliminating redundancy in printers, (ii) a solution for file back-up., (iii) buying less expensive desktops by perhaps pushing vast storage requirements etc to a central/shared location, etc., etc.

I am not sure I could perform an adequate cost/benefit analysis of a telephone but if I told you that you had to run your business without one...you would say I was nuts. About the same standard now applies to office networks...I am not sure what my office would do without one....we would not be geared to do business with the rest of the world.

The first application we put on top of our own network was email. We have evolved to use it as an access device to the Internet, to share files, to co-manage projects together, to control distribution of software including upgrades. The Internet connectivity allows us to access new types of software applications that operate somewhere out in cyberspace...those applications out in cyberspace are constructed to help us work together inside the company as well as with any trading partners outside the company. It is fairly amazing how connectivity has caused us to change the way we do things in terms of speed, clarity, and accuracy.

When looking at the prospects of any new form of data network...whether it is field automation, power grid control, or for drilling project management I go back to our own experience with our own network and contemplate our own evolution. Those engaging in new forms network connectivity will develop complex uses of them (if you don't believe me...go stare at the user interface of your cell phone). But for now...they are, as the analogy goes, just getting started with email. As investors...one doesn't have to be brilliant to understand this...just somewhat knowledgeable of history and human behavior.