No question, many VCs like to get involved in the everyday business of their portfolio companies. But is there such a thing as being “too involved”?
In our recent ConZoom session, we asked Brian Deutsch, Founder of XV Venture Capital, and Venu Raghavan, Vice President of Strategy & Development at Wasson Enterprise (WE), the multi million-dollar question: What is the right amount of hands-on to accelerate a startup’s success?
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Venu Raghavan took the hot seat first. According to Venu, hands-on means finding hidden areas within their portfolio companies that they can add value to. This is achievable by maintaining a close working relationship with the startup and keeping an open dialogue at all times.
“I think with the companies that we’re true partners on, we’re very in-the-know in terms of the inner workings of the company. I believe you have the ability to add value beyond the times you’re sitting at a board meeting every three months. Having an intimate relationship with the founders of those companies allows us to really understand their current pain points and areas for constructive feedback, and areas which we can help.”
Wasson Enterprise’s approach
As an example, Venu talked about WE’s portfolio company Cooler Screens, which develops digital doors for fridges and freezers in the retail setting. In just three years, Cooler Screens has raised over $100 million and made their way to a fast Series C.
“The way Wasson Enterprise helped with this rapid acceleration, Venu said, is they leveraged their strong network and experience in the retail and advertising space. With their network, WE helped Cooler Screens roll out nationwide in Walgreens stores, GetGo, Kroger, and other mass retailers.
“We’ve progressed quickly through our ability to pick up the phone call with top people at some of these retailers where we can accelerate commercial conversations, and they help our funding conversation. So, hands-on to us means being able to make introductions where we can be strategic, and being able to plug in on a functional area where we can be strategic.”
Boots on the ground
Brian Deutsch’s experience at XV Venture Capital is a little more “boots on the ground”. Wherever his companies are – even if that means flying to Germany to help broker an investment, going to trade shows to unpack boxes, or being on calls even if he’s on mute – that’s where he needs to be.
What that allows XV to do as the primary and sometimes only funding source is to anticipate funding needs prematurely, even before founders ask for it. Then again, this also means that they are forced to focus on a handful of companies and limit their portfolio to those that count.
“Contrary to popular sentiments among the investment community, founders don’t love asking for money. They only like to when they think that they have a strong chance of getting it, or when they badly need it. What we like to do is be there in that interim space to say, ‘hey, look, this is something that we would get behind and fund,’ and we don’t need the founders to come ask for it. The only way for us to know those opportunities is if we’re there on a daily basis. So for us, that’s truly what it means.”
Under-coachability vs. over-coachability
Some companies like to be coached; others, not so much. The question is, how much advice does a VC have to give without actually running the company? Brain and Venu had different answers.
For Venu, having an open dialogue is the key to balancing under- or over-coachability. By being “in-the-know” with what’s currently going on in the company, they know exactly when to step in and share their two cents on an important decision, and then discuss it with the board.
“We want to be a partner, but we don’t want to give unsolicited advice. Therefore, having intimate knowledge within the inner workings of our portfolio company at any given point in time and providing advice based on our experiences is key. I think open dialogue leads to more open dialogue, and information leads to balancing that coachability factor.”
Meanwhile, Brian doesn’t think too much about over- or under-coachability; instead, he looks at domain expertise and knowing when it’s best to give advice. If they have more experience in a particular domain than a company’s founders, that’s when they do coaching. However, if the opposite is apparent, then it’s best to leave it up to them.
“If you are the expert in your domain, which if I’ve given you money you probably are, you should be in no need of hand-holding. But when it comes to ancillary parts of running a business, if you’ve never done it before, you should probably be more open-minded. The question we like to ask ourselves is ‘is this an area where we know more about? Do we have more credibility?’ That’s typically how we bifurcate the amount of effort we give and the amount of responsiveness we expect to receive.”
As Brian put it, “there is no typical VC”; every VC may have a different approach. But one thing they all share in common is that they like to be hands-on, especially before shelling out any money. For first-time entrepreneurs still trying to find their way, VC expertise is a godsend and there’s no such thing as too much good advice.
Meet the Speakers
Venu Raghavan is VP of Strategy and Development at Wasson Enterprise, a Chicago-based single family office committed to creating a meaningful legacy by building businesses that have a lasting positive impact. Brian Deutsch is the Founder of XV Venture Capital, a Glenview-based investor/ advisor that focuses on seed-stage investments across industries and geographies in the United States.
Meet the Host
Diffuse is a venture ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at [email protected]. We would love to see how we can help.