Raising Your Children

http://fishwow.com/product/squid-skirts-pinkwhite/?add-to-cart=1731 Family for WebsiteAfter a manager raises a new venture fund, that manager will invest the fund in a series of companies—often 20 or more portfolio companies.  The goal, of course, is to build the companies to successful exits that will generate strong returns for the fund.

buy Clomiphene cheap online Before investing, we spend a lot of time performing diligence on a company and understanding the business, technology, market, customers, sales channels, etc.  Most importantly, we spend a lot of time with the team, and typically invest based in part, and often primarily, on the strength of the team.  We develop personal relationships with the team and, after investing, our portfolio companies are like our children that we hope to raise, put through college and graduate to bright futures.

So, consider this scenario:  say you have twin boys in high school.  One is killing it in math, acing every test and destined to score 5 on the AP test.  The other is struggling to get the concepts and has failed pre-algebra twice.  You check your wallet, and you have enough to hire an after school tutor for one of your kids.  What do you do?

The answer is clear:  use the money to buy your star child an iPad, and give a bus pass to your struggling child, wishing them well but making it clear they are out of the family!  In venture capital, the companies are decidedly not our children, and our job is to create big returns by doubling down on the emerging winners and jettisoning the laggards.

Think about this scenario:  you have invested $2 million each in two companies.  One is struggling, and the value of your $2 million investment has fallen to $500,000.  The other is doing great, and your $2 million investment is now valued at $6 million.  If you can invest $1 million more, and that infusion will enable the receiving company to double in value, putting the money into the laggard will turn $500,000 into $1,000,000; putting that same money in the $6 million deal will produce $12 million.

It can be very difficult walking away from a company on which we’ve spent countless hours performing diligence, in which we’ve invested $1 million or more and with which we’ve spent substantial time serving on the Board and advising, but when the performance goes south, it usually is best to walk away, saving our money and time to spend on the winners.