Supporting CEOs in your Portfolio Companies #ACAAngelSummit
Angels Connect NZ Series – Bill Murphy from Enterprise Angels reports from USA Angel Capital Association Conference 2015
Recognising the crucial role angel investors play in a company’s development after the first round of funds have been committed, the ‘Supporting Portfolio CEOs‘ workshop took a deep dive into leveraging board member skills to guide a company through value accretion to exit.
The first point made was how important it is for angels to acquire the skills and knowledge required to properly manage the important issues following investment. It is also clear that it takes a real commitment to be effective.
Ideally an investor-director should be putting in a couple of days a week, with their primary function being ‘chief encouragement officer’.
As most founders don’t have experience running a business the angel director should be constantly asking questions that support the growth of the founder, the team and the company. Complaining and blaming don’t help.
Key questions to be asked and answered on a regular basis include;
- What’s the cashflow position?
- What cash is it going to take to get us to the next fundable round of investment?
- Have we defined our market tightly and distinctly so that we can “own” that market? and
- How can I help develop strategy?
Calling and talking to the CEO on a random basis (in addition to regular board meetings) was also suggested. These conversations are far more effective than written communications. Discussing progress ‘on the fly’, one on one, is a really effective means of teasing out issues.
Every investor-director should regularly review material which provides an introduction to governance of an angel backed company. Understanding how the functions of an early-stage board differ from boards of established companies is vital. Attending a course or reading up on this is hugely helpful.
Sitting down with the founder and the team at the outset to make sure expectations about the exit and path to exit are agreed and aligned is highly recommended. This should be done even before the first cheque is written.
The ideal size for an early stage, high growth company is five. Three members will be independent of management. It is paramount that management and the board have complete clarity about expectations regarding reports and reporting – how often, how long, covering what etc. Panelists and attendees at the workshop agreed it’s far better to warn entrepreneurs you are going to be a ‘pain in the ass’ at the outset and made the point that there will be less pain for everyone if regular timely reporting is carried out.
Another useful tip was immediately after investment it’s worth taking time to map out with the entrepreneur and the board the first 6 month’s implementation plan with a laser focus. Many founders are overly opportunistic, running after every opportunity or adopting every customer request for product iteration. This is unlikely to add value to the enterprise.
Other useful suggestions included;
- Doing a SWOT analysis on a regular basis.
- Setting annual milestones which are informed by the CEO talking to potential acquirers about what the company needs to look like to be bought.
- Helping the CEO identify non-dilutive sources of capital.
Finally, the audience was reminded that accessing the angel group at regular angel group meetings where investor-directors and founders can talk about what stage the venture is at, is a really effective way to achieve better results. These meetings serve a dual purpose – they keep members informed so they are likely to be positively disposed to the next funding round and they increasing the chances of success by leveraging the intellectual resources of the entire angel group, pulling contacts and experience.
It was encouraging to hear that many of the activities the AANZ is undertaking reflect international best practice outlined in the workshop. The governance course for new angel directors being developed by the AANZ with some help from New Zealand’s Institute of Directors (email [email protected] for more information) and the increasing number of member meetings (outside regular pitch evenings) all bode well for NZ angels and entrepreneurs. A shared focus, regular reporting and leveraging shared networks are key components of multimillion-dollar exits.
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To meet and hear from international angels and leaders in New Zealand’s angel investment community secure your seat at one the southern hemisphere’s largest international exclusive investor events Asian Business Angels Forum, being held in Queenstown, New Zealand, October 14-16 2015.