Category Archives: foxhole

Venture Capital Syndicates

I’ve written before about how tough markets like this really separate the wheat from the chaff within a company. As if your company were a foxhole, you get to see who stays to fight by your side and who runs to another foxhole with more protection; or worse, who runs away from the fight altogether looking for a safe desk job far from the battlefield.

My past posts were more about people within a company, but a similar test of commitment happens within investor syndicates. Most entrepreneurs I’ve met focus on picking their lead investor, but spend little attention on the long-term strength/weakness of the syndicate that forms around that lead. As an investor that typically leads deals, Inflexion spends considerable time and diligence architecting the syndicates in our deals. Most of the time, we select investors we’ve built companies with before, but every now and then we partner with a fund for the first time. That requires a bit more diligence and we look for, at least, the following four things:

1) Value-add: Relevant investing or operating experience for the opportunity. Beyond the dollars, syndicates are about bringing value-add to a portfolio company thru experience and relationships.
2) Congruence: A POV on the opportunity that’s consistent with the entrepreneur and lead investor. Although a quality syndicate requires diversity of experiences and networks, divergent views on the “big opportunity” can be a huge time/resource sink.
3) Dry Powder: A fund size, age and reserve philosophy that suggests they won’t get “over their skis” prematurely. We’d rather a co-investor put in less money up front and reserve appropriately (2X-5X), than go heavy early, leaving little dry powder for critical later rounds.
4) Consistency: A track record of consistent operating and financial decision-making. A co-investor that provides inconsistent guidance can wreak havoc at a board level, and a hair-trigger between greed and fear will whipsaw entrepreneurs and co-investors alike. In the unpredictable world of early-stage venture capital, co-investor consistency is an absolute must.

There are plenty of other factors, like investing style (west coast vs. east coast, home-runs vs. doubles), but those four are at the top of my list. I only want investors in my foxhole who will add significant value beyond their dollars, see the same “big opportunity”, reserve dollars to play when entrepreneurs really need them, and behave in a consistent manner we can rely upon — particularly in tough times. I don’t always get that mix right, but it’s my job as lead investor and commitment to my entrepreneurs to try.

Tough Times are Telling Times


foxholeBy now you should have read plenty of entrepreneur/VC advice on surviving in the post-mortgage crisis world.  I won’t rehash it here, but 2009 will be tough and today’s difficult decisions will separate the next batch of startup winners and losers.  One topic I haven’t seen covered much is the interpersonal opportunity that these tough times bring — for entrepreneurs and investors.

At my first couple funds, I was lucky enough to see the upside and downside of the tech bubble.  During that time I worked with a diverse set of entrepreneurs and co-investors.  The way they behaved individually and towards each other, during the tough times, shined a bright light on their strengths, weaknesses and character.
This is when the age-old question “Who do you want in your foxhole?” has real-life implications.  An investor whose only advice is to cut burn without enough company awareness to help entrepreneurs prioritize, can be a dangerous foxhole roomy.  An entrepreneur whose only thought is to request more funding to bridge the tough market, can be deadly.  Investors or entrepreneurs who can’t pick up the phone to each other and grow their relationship during times like these, never will.
On the flipside, entrepreneurs and investors who dig-in together during times like these can build lifelong bonds.  Likewise, startup teams that find ways to support each other and build a stronger business, gain a new family and stand to reap the rewards of a category winner when the macro environment clears.
So, if times like these shine a bright light on your weaknesses, strengths and character; what will your teammates, entrepreneurs and investors see in you?
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