When Does An Investor Intervene?

A lot of investors say they are “active investors”.  It’s almost in every pitch deck you see.  The definition of an active investor is fuzzy.  What’s it really mean?

Does it mean you simply lead deals and take board seats?

To me, that’s not super active.  Doing that stuff is the easy part.  Lots of investors like to sit on boards and just be a judge.  Quarterly, they get the numbers and then opine.

To me, active means interaction with the CEO.  If the CEO is okay with me talking to someone else on the team, then it happens.  You never go around the CEO.

The other hard thing for investors is to know when the right time to become active is.  Do you do it immediately when you spot something you think is out of whack?  Do you wait-or go?

The key thing to remember is startups aren’t cookie cutter.  Each one is different.  The solution for one is not necessarily the solution for all.

I find in situations like that the best thing to do is take a step back and do an inventory on your own emotional state.  Is there something going on in your life that is pushing you to act?

When people have other people’s money (OPM) on the table, they act a lot different than if it’s their own.  I have seen people do some really wacky stuff when it’s their own money and the chips are down.  It’s when you find out the true character of the person.

Even if it’s all OPM, it could be that the investor has a tenuous relationship in their fund.  Maybe this investment is make or break for them and if it fails they are out of a job.

For an investor, it’s really good to do an inventory of yourself before you start in on someone else.

This is a real world thing.  A lot of people think it happens only in early stages but what about a company like Uber?

If you decide to act, it’s always best to ask questions.  The entrepreneur will reveal a lot more than if you simply go in and tell them what you would do.

 

 

 

  • JLM

    .
    The rules of governing any corporation are codified in the Corporate By Laws, the Articles of Incorporation, and any Shareholder Agreements.

    The Board of Directors is elected by the shareholders (of which the management may be a substantial part). This determines the composition of the Board.

    Investors may be a minority on a Board.

    The Board retains, oversees, and appraises the performance of management.

    The Board, as part of its oversight duty, approves plans promulgated by management.

    The only real power a Board has is the power of its votes and the power of persuasion.

    When someone is characterized as an “activist” investor, then they have to channel their actions through the appropriate means/channels.

    It is really quite logical and simple. Until you add the personalities and people. Ugh.

    JLM
    http://www.themusingsofthebigredcar.com

    • Pointsandfigures

      I think the Articles of Incorporation are fine. If sales aren’t growing or there is a problem in the operational process that you spot between board meetings, it’s time to make an appointment and talk with the CEO outside of a board meeting.

      At the same time, revenue might not be increasing the way you’d like, or some other processes in the company might not be performing the way you’d like. It’s time for you to take a step back and assess your own emotions and figure out if it’s the company or it’s you.

      that’s management by emotional intelligence and it works.

      • JLM

        .
        The relationship between a CEO and the Chairman of the Board should be closer and more intimate. Within this intimacy, a CEO has to be very careful to ensure he is protecting his own position with the company.

        The things you are talking about are operational. If operations are not coming together, then the answer is to tighten up the time between board meetings, set intermediate objectives, and to let the CEO try to accomplish the objectives.

        Do not abandon the process, tighten it up.

        There is very little argument that sound corporate governance is enhanced by violating the principles of sound corporate governance.

        There is no reason why people should be reluctant to invest or engage emotion. There is a tendency to suggest that emotional engagement is always bad.

        In fact, emotional engagement is a fundamental leadership technique.

        I cannot tell you the number of times I have said, “Now, you understand the objective, right? And you understand I am counting on you to get it done, right? You know if you can’t get it done, to come see me and I will get someone to do it who can do it. Do not disappointment me. We good on this?”

        Leadership is always personal.

        The harshest thing I ever said to anyone in 33 years of CEOing was, “You let me down. You disappointed me.”

        I cannot tell you the number of times I have said to someone, “You CAN do this. I know it. Even if you don’t, I do. Go do it.”

        JLM
        http://www.themusingsofthebigredcar.com

  • awaldstein

    “For an investor, it’s really good to do an inventory of yourself before you start in on someone else.”

    This is a word to the wise for people in every situation.

    If you can’t do this you are not ready for prime time.

    I’ve blocked a very few folks around the various communities not because of their views at all but because of this very thing, that they are not interested in communications, they are interested in lecturing and hearing themselves talk.

    Life is so much better and productive for this. Remarkably actually.

    • JLM

      .
      @SixgillBlog:disqus

      Arnold, can you stop with the blocking talk and how great your life is afterwards. It is so cupcake boring. Give it a rest.

      You are doing exactly what you accuse others of doing — “lecturing and hearing themselves talk.” You sound like a pre-menstrual debutante.

      Sorry.

      JLM
      http://www.themusingsofthebigredcar.com

      • Pointsandfigures

        take it out to the bike racks