Am I a Bad VC for Wanting Our Portfolio Companies To Make More Money for Public

February 22, 2023

Hoping for a Legacy of Enduring Corporations, Not Penny Stocks or Goodwill Write-Downs

Get me a cremation urn decked out in company logos like a NASCAR driver (notice to the executor of my will, there’s gonna be a lot of weird requests). While my life is greater than just my career, I do believe in working on projects that you’d put on your tombstone. And since the Homebrew logo is already tattooed on my shoulder, extending the portfolio to my posthumous memorials isn’t that far of stretch. But the motivation here isn’t an IRR victory lap, more a goal that the companies we were associated with were enduring, even beyond my own life.

As venture capitalists, we toggle too often between claiming credit or distancing ourselves from a startup based on the circumstances. Winning companies produce stories of key introductions, strategy discussions and other ‘value add.’ Failures yield ‘I’m just a small investor’ or ‘you know there’s only so much you can do in that situation’ even when our tenure involved Board service or systemic ethical lapses. I’m throwing stones from inside, not outside, the glass house as I’m surely guilty of this as well (although we try to own our decisions through the lifecycle).

This confusion traditionally doesn’t extend to post-exit company trajectories. Off the cap table, no longer a shareholder (or at least a declining one as you sell off/distribute), at some point stepping down from the Board. It’s a break point where you can root for the team, or scrub it from your mind, but you have set the company free and it’s back to work on the portfolio.

And yet I still wonder, as I look at the downward trajectory of most SPACs and other tarnished IPOs from the last few years, how I’d feel if those were my legacy. Did I do my job? Yes. Investing in a company when it was just starting out — odds are stacked against any startup surviving, let alone thriving — and guiding it to an outcome that at the very least gave it a chance to find sunlight. The SPAC sponsors, the institutional buyers, the retail investors. They all have a right to transact freely in an open market. If they took on risk and lost capital, it’s just the system functioning! But…

In our first three funds we were typically a lead or co-lead investor, and then would get pushed down the cap table as new VCs came into the company during successive financings. The impact you have is rarely about voting your shares and more in supporting the company as they need it. You earn, and maintain, trust with the founders by being useful and consistent and trying to help the company become the best version of itself.

Every startup we back I hope can be a public company that thrives before, during, and after we benefit. It’s the ideal (in my mind) of American capitalism. Yeah there’s plenty of shit that comes along with a stock ticker and I’m in favor of all sorts of regulation streamlining (in addition to being a person investor in the Long-Term Stock Exchange). But the chance to be owned by a broad group of investors and create real gains for them, it’s simply awesome. As is the chance to see someone you met when they were just getting going grow into a public company CEO without losing their voice, their leadership, or their values.

So I guess I’m just noodling on what we can do from the earliest days to not just realize value from our investments but construct companies with bright days beyond the exit. Maybe seed venture capital isn’t the position to best influence those outcomes, but I’m not comfortable with giving up that responsibility.

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