Florida Venture Blog by Dan Rua dan

No-BS Venture Thoughts for No-BS Entrepreneurs.

A running perspective on Florida's growing tech and venture community, with an occasional detour to the Southeast/national scene, venture capital FAQs and maybe a gadget or two....

By Dan Rua, Managing Partner of Inflexion Partners -- "Florida's Venture Fund".

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.

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Comments (3)

Blogger Healy Jones said...

It is also important to make sure the investors get along - at least the partners who will be on your board of directors. In a fight between VCs it is the entrepreneur who usually loses...

4:39 PM  
Blogger VC Dan said...

@Healy: absolutely. That was in the back of my head when I wrote about Congruence, but it didn't make it thru my fingers. Sounds like you've been there before...

5:22 PM  
Blogger Healy Jones said...

Only from the junior VC side, looking up at the partners and over at the entrepreneur thinking, "man, I feel for that guy." Now that I'm attempting to actually be an entrepreneur, I'm hopeful I can avoid this issue and the others that you mention in your post!!

5:34 PM  

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