a16z Podcast: How To Get The Most From Your Board

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0:00:10 tax or investment advice or be used to evaluate any investment or security and is not directed
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0:00:20 I’m Frank Chen.
0:00:26 Today I’m here with Scott Cooper and we are now in part three of three of our de-mystifying
0:00:28 Silicon Valley.
0:00:31 This part is all about living with your investor.
0:00:35 As Scott will point out, the average length of time that you will work with a venture
0:00:42 investor, 8, 10, 12 years, is longer than the average marriage, terrifying statistic.
0:00:46 And so you want to make sure that you understand how to work and pick with an investor that
0:00:49 you can live with over a long period of time.
0:00:53 And so we’re going to talk about ways that you can think about getting the most out of
0:00:59 your venture investor and board member and how to handle situations from the bad situations
0:01:04 where you have to wind down the company to the awesome situations where we hope you find
0:01:07 yourself, which is you’re doing an IPO for your company.
0:01:09 So let’s dig right into it.
0:01:13 Let’s talk a little bit about, fundamentally, what do I want from my investor?
0:01:16 And usually they’ll live basically as my board member.
0:01:17 Yeah.
0:01:18 Right?
0:01:19 Like what are the big things I’m looking for?
0:01:20 Yeah.
0:01:21 So look, I think, you know, certainly you want a board member and all the things that a board
0:01:25 member entails, which is hopefully they are a good coach, a good mentor, a good sounding
0:01:29 board for you, hopefully they’re good stewards of corporate governance and help you kind of
0:01:31 think through important strategic decisions for the company.
0:01:35 But then I think more importantly, you know, and this extends beyond often just the general
0:01:40 partner who’s sitting on your board, you want some value from them that allows you to help
0:01:41 you accelerate the growth of the business.
0:01:46 I mean, ultimately, you and the venture capitalists are along for the same ride, which is you’re
0:01:51 both trying to achieve an outcome that yields a very important, longstanding, hopefully independent
0:01:52 and publicly traded company.
0:01:57 And so, you know, whatever the venture capitalists can do to help you with that, whether it’s
0:02:01 making customer introductions or helping you understand, you know, how and when to add
0:02:06 a CFO or a head of sales or, you know, how best to kind of navigate, you know, the PR
0:02:09 and marketing world and who are the right press relationships to have.
0:02:13 All those things are, I think, fair game where, you know, kind of good VCs find ways in which
0:02:17 they can be valuable to entrepreneurs in that regard.
0:02:22 So one of the jobs of the board is that they can fire me as the CEO.
0:02:23 Yes.
0:02:24 Okay.
0:02:26 So now I’ve got this weird incentive, which is on the one hand, I want that partnership.
0:02:27 Yeah.
0:02:28 I want to get great advice.
0:02:32 And on the other hand, like if I share too much or like I, you know, too open about my
0:02:35 vulnerabilities or my shortcomings, like I could get fired.
0:02:38 And so how should I think about transparency, trust?
0:02:39 Exactly right.
0:02:42 It’s a little bit like the relationship, you know, probably your youngest has with you
0:02:43 as a parent, right?
0:02:44 Which is okay.
0:02:45 I want to be truthful.
0:02:46 Right.
0:02:48 I want to tell them what I’ve wrong, but I know there’s consequences for doing that, right?
0:02:53 So yeah, look, I think, so you’re absolutely right, which is, look, the fundamental power
0:02:55 the board does, of course, is to be able to hire a private CEO.
0:02:58 Now we talked about this in a different session.
0:03:02 It’s also changing these days, which is often the boards are not controlled by the venture
0:03:06 capitalist, but controlled by the CEO and, you know, kind of, you know, other common shareholders,
0:03:09 in which case the board really can’t, you know, the venture capitalist can’t, you don’t
0:03:10 really do anything.
0:03:14 They would have to actually really generate consensus with a much broader set of folks.
0:03:19 So I think some of those risks of kind of, you know, a VC being, you know, kind of random
0:03:23 or, you know, kind of, you know, not thinking through these things and, you know, and doing
0:03:26 that is much, that risk is much lessened today.
0:03:27 Technically they can’t out-vote me.
0:03:28 That’s exactly right.
0:03:29 Right.
0:03:31 They would have to kind of, you know, co-opt other members of your kind of, you know, constituents
0:03:33 to do so.
0:03:37 But that notwithstanding, I think even in the scenario where that’s not the case, I think
0:03:38 you’re right.
0:03:42 In some cases, look, you have to, you still have to build a relationship, though, where,
0:03:46 you know, you are willing to share enough information to, you know, to kind of, you know, get their
0:03:48 advice and get their help.
0:03:52 Yeah, in some cases, maybe that means you’re vulnerable, but I think in most cases, I think
0:03:56 most VCs would say, hey, look, if there’s, if you can tell us stuff and we can help you
0:04:00 fix it and help you address it, then, you know, there’s no reason, it doesn’t necessarily
0:04:03 mean that every time you do something wrong, you know, you get punished and you basically
0:04:04 find yourself out of a job.
0:04:06 So I think most people are pretty rational about this, but you’re right.
0:04:12 There is this kind of strange dichotomy of kind of, you know, having somebody who’s also
0:04:17 your boss essentially be your consigliary as well.
0:04:23 And then sort of as I build the company, I’m going to basically grow the board from, you
0:04:24 know, people who invest in money, right?
0:04:27 So I have a Series A investor who takes a board seat, then the B investor takes a board
0:04:28 seat.
0:04:32 So now I’ve got like a whole cat herding exercise to go through.
0:04:37 And there are situations in which the economic interest of my investors, A’s and B’s and
0:04:38 C’s, can diverge.
0:04:39 Absolutely.
0:04:42 Like I might get into a situation where somebody’s heading into a fundraise.
0:04:43 They need a liquidity event.
0:04:44 Yeah, yeah, yeah.
0:04:48 They need to put up some dollars and so like now they’re pressuring me to sell the company.
0:04:49 Yeah, yeah, yeah.
0:04:50 Right?
0:04:53 Whereas the A and B investors might be like, no, no, no, we’re like, let’s go for a bigger
0:04:54 outcome.
0:04:55 Yeah.
0:04:56 So how do I manage these situations?
0:04:59 Those are tough issues in managing, I think, again, as a CEO, it’s really important for
0:05:02 you to kind of understand exactly what those incentives are.
0:05:06 And you mentioned it, hey, maybe I, as the VC, need to go fundraise a new fund and so
0:05:10 I need to show my LPs that I’m smart and I’m making some money and we get an acquisition
0:05:11 offer for your company.
0:05:14 And for me, it’s a good outcome, but maybe it’s not a good outcome for you and others.
0:05:20 Now the good news is, as a board member, you are a fiduciary to those shareholders.
0:05:24 And so you do have legal constraints on your ability to be completely self-serving.
0:05:26 But still, even within that, you have to think about it.
0:05:31 And so this is, you know, oftentimes you’ll see, you may have heard of this term called
0:05:35 a waterfall analysis, which is oftentimes it’s a mechanism by which often the lawyers
0:05:39 will do it for you for the company and they’ll say, hey, look, if you sell the company at
0:05:42 this price, here’s what the A people will get, here’s what the B people get, here’s what
0:05:44 you and your employees get.
0:05:48 And it’s good in those situations to look at that because that will help you understand
0:05:51 if you do have this kind of divergence of interest among folks.
0:05:55 You know, again, I think, as with all things, look, the best thing you can do is hopefully
0:05:58 you’ve stacked your board with good people who are rational and who respect things like
0:06:00 fiduciary duties.
0:06:03 And you can have a meaningful conversation around that.
0:06:04 Yeah.
0:06:08 In theory, the board is supposed to be exercising duty of care.
0:06:15 In theory, they’re not supposed to put their own interests ahead of all of the, but there
0:06:19 are situations where you will get this sort of self-serving behavior.
0:06:25 Yeah, well, you kind of find this weird situation and is often times when company, we talked
0:06:29 about liquidation preference in one of our prior sessions, where a company is getting
0:06:31 sold for at or around the liquidation preference.
0:06:34 This is where you tend to kind of get these issues that come up, right?
0:06:39 Because the VCs are, you know, if they’ve got $30 million of liquidation preference,
0:06:44 they’re probably indifferent between a $30 million sale and a $35 million sale and a
0:06:46 $40 million sale because, you know, I’m just making up these numbers.
0:06:49 But let’s assume in those cases, they’re still going to get the same amount of their
0:06:53 liquidation preference because the price isn’t high enough to actually cause them to convert
0:06:55 and take their normal equity ownership.
0:06:57 And so you do get these weird scenarios.
0:07:01 Now, again, as I said, the good news is most of the time, you know, people still act rationally.
0:07:05 There are a couple cases, though, that we’ve seen where the courts have kind of said, “Hey,
0:07:08 we don’t like the behavior we’re seeing from the VCs because you kind of didn’t take
0:07:12 care of the common shareholders, which is really your main job here.”
0:07:18 And so, you know, I don’t want to put everybody to sleep on this webcast here, but, you know,
0:07:21 there’s a whole chapter on this in the book which kind of helps you understand how we
0:07:22 got there.
0:07:24 And then, importantly, what are the kinds of things that you can do to make sure that
0:07:27 you don’t run afoul of those problems?
0:07:31 So the take home message for me as the startup CEO is like, “I need to understand all of
0:07:37 the incentives and the timeframes of the people who are on my board so I can try to understand
0:07:38 why are you saying what you’re saying?”
0:07:39 That’s exactly right.
0:07:41 Yeah, and look, it goes, again, you know, it goes back to, you know, where we started
0:07:42 the conversation.
0:07:46 Our first session when we started talking was, you know, incentives drive behavior for
0:07:47 better or worse.
0:07:48 Right?
0:07:52 You know, you know, we, again, you and I spent time in the enterprise world where, look,
0:07:55 if you want to change the way you sell your product, the best thing to do is change the
0:07:57 quota structure for your sales reps, right?
0:08:00 And that’s not, you know, a denigrating statement.
0:08:03 It’s just the way that, look, incentives may have a matter and people respond to incentives.
0:08:06 And just like that, you know, venture capitalists are people, too.
0:08:09 And so, they respond to the incentive structure they have, and the more you understand that,
0:08:14 the more I think you can finally cut through and actually have a rational dialogue.
0:08:15 Great.
0:08:19 Now, I want to do some sort of play acting with you on three scenarios.
0:08:23 So scenario one is things aren’t going well, we’re going to have to do something tough
0:08:27 like raise a down round or a bridge, and then a scenario where, hey, yeah, we’re getting
0:08:30 acquired and, you know, we’re going to clear the liquidation preferences.
0:08:31 It’s going to be happy.
0:08:32 Yeah.
0:08:34 And then the super happy scenario where we’re going public.
0:08:35 All right.
0:08:36 So let’s, advice for each one of those.
0:08:37 All right.
0:08:38 Tough times.
0:08:39 Yeah.
0:08:40 It’s not going the way I expect.
0:08:41 I have to raise a bridge.
0:08:42 Yeah.
0:08:43 Maybe I have to raise a down round.
0:08:44 How should I think about this?
0:08:45 Yeah.
0:08:46 This is hard.
0:08:49 I talk about this in the book a lot, but I’d say the most important thing I think to think
0:08:52 about here is, and this is where I do think having good relationship with your VC is critically
0:08:55 important, is having a real open, honest discussion, right?
0:08:59 So sometimes, unfortunately, despite your best efforts and, you know, despite our best
0:09:03 efforts, hopefully to be supportive of you, maybe the market’s just not there or the product’s
0:09:07 not taking, you know, for whatever reason, you know, look, you gave it 110% and it’s
0:09:08 just not there.
0:09:13 And, you know, it’s interesting when I’ve had those conversations with entrepreneurs,
0:09:16 I was kind of, I was, you know, dreading going into that conversation because I was worried
0:09:18 that, you know, it was going to be a contentious discussion.
0:09:21 And more times than not, they actually come out and they say, you know what, I’m kind
0:09:25 of relieved because I was thinking the same thing you were, which is I was doing this
0:09:31 because I thought my job to you as the VC was to just run through walls no matter what.
0:09:34 And honestly, I don’t know that spending another three, four years doing this is likely to yield
0:09:35 a better outcome.
0:09:38 It doesn’t always happen that way, but more often than not, I’d say that happens.
0:09:42 And so I think in those cases, look, it’s perfectly respectable to say, hey, look, we
0:09:44 all gave it our best and it didn’t work.
0:09:47 And the right thing to do is let’s wind it down in a reasonable fashion so that we can
0:09:51 hopefully, you know, take care of our employees and take care of our vendors and do all the
0:09:53 things we can.
0:09:57 If you still feel like, you know, the alternative is true, which is, hey, yes, maybe we got
0:10:01 the product wrong or maybe the market’s developed more slowly, but you know what, like, I’m committed
0:10:05 as an entrepreneur and I really believe this market is still here in the survival business.
0:10:08 Then, you know, kind of, I talked about this in the book, but things like what you call
0:10:11 like a recapitalization, which is kind of almost a reset, right?
0:10:14 Which is we say, hey, look, we raised a bunch of money, we spent it, it didn’t yield what
0:10:18 we want, but we’re all still believing this thing and I want to go spend the next 10 years
0:10:20 of my life trying to do this.
0:10:22 Then let’s set the company up for success, right?
0:10:26 And it’s unpleasant, the word recap is obviously has such a negative connotation, but in that
0:10:30 respect, it’s actually a positive thing, which is we’re going to figure out, okay, how do
0:10:34 we kind of make the company attractive for potentially new investors to come back in
0:10:38 by cleaning up some of these things like liquidation preference we’ve talked about, resetting the
0:10:42 price to a point that actually reflects the progress of the business.
0:10:44 But importantly, and this is where I think entrepreneurs need to make sure they’re aligned
0:10:49 with their VCs, for you as an entrepreneur and your employees to also make sure that
0:10:50 you get reset as well, right?
0:10:55 So there’s no sense in any of us putting more money in the company if it turns out all of
0:10:59 your stock options are underwater and you’ve got no financial incentive and then tomorrow
0:11:01 everybody’s going to walk away from the business, right?
0:11:04 So this requires kind of give and take on both sides, which is, you know, the VCs will
0:11:07 give up a lot of the rights that they otherwise had.
0:11:11 But importantly, the give that the VCs, you know, need to do to make this successful is
0:11:15 to kind of re-insent the team as well and make sure that you all are, you know, shooting
0:11:18 for the same ultimate outcome.
0:11:21 So there’s a lot of emotional freedom, just sort of listening to you talk, right?
0:11:26 Because even if we have to wind it down, we can have the conversation and then realizing
0:11:29 that like half your portfolio is going to go belly up anyway, right?
0:11:32 I don’t have to feel like, oh my god, I’m like the world’s biggest failure, right?
0:11:34 Which is like you’re kind of expecting this.
0:11:35 I think that’s right.
0:11:36 Yeah.
0:11:39 But it’s, you know, it’s more, obviously look, it’s more emotional and more personal
0:11:41 for you as the entrepreneur, of course, right?
0:11:45 Because you’ve, you know, this has been your life’s dream.
0:11:46 But you’re right.
0:11:47 So you shouldn’t feel sorry for the VCs, right?
0:11:51 And I certainly never, would never suggest that you should feel sorry for the VCs because
0:11:52 you’re right.
0:11:54 We expect that that kind of risk is what’s inherent to the business.
0:11:57 The more important question is really, do you still believe in the market?
0:12:01 Do you still want to pursue this or also do you feel like, hey, it was a good idea, but
0:12:05 just for a variety of reasons, didn’t materialize in the way we thought and the more rational
0:12:07 thing to do is go do something else?
0:12:08 Got it.
0:12:09 Great.
0:12:10 Let’s move on to scenario two.
0:12:11 Right.
0:12:14 So we’re getting an acquired and an attractive price, yay, it’s not quite an IPO, but it’s
0:12:15 not a wind-down.
0:12:16 Yeah.
0:12:17 It’s not a recap.
0:12:21 So what are things that are important to think about as we’re going through this process?
0:12:24 So maybe let’s start with sort of how, you know, how are we getting value?
0:12:27 Is it cash or private stock or public stock?
0:12:28 Yeah.
0:12:29 Yeah.
0:12:30 So there’s lots of things to think about, right?
0:12:32 One is you’re right, which is look, what’s the economic interest we’re getting here?
0:12:36 And, you know, sometimes, as you said, that could be you might be getting paid in cash,
0:12:38 sometimes you might get stock of the other acquirer.
0:12:42 And so depending on the scenario, right, you may want to do some homework if you’re getting
0:12:45 stock to understand what do I think about that stock, what do I think about the prospects
0:12:49 of that company, because your economic future is now going to be tied to the success of
0:12:51 that business as well.
0:12:54 I think the most important thing, though, to think about, obviously price is important,
0:12:56 so I don’t want to belittle that.
0:13:01 But the next most important thing to think about is what is the go-forward business going
0:13:02 to look like, right?
0:13:05 Are you being acquired because they really love your product and love your vision and
0:13:09 now you’re going to go be the general manager of some new unit in the company and have the
0:13:13 ability to affect the vision that you had hoped you would affect as a standalone company,
0:13:17 but now inside of a bigger, you know, better resource, better capitalized company?
0:13:18 That’s wonderful.
0:13:21 Obviously if you’re signed up to do that and your employees are signed up for that, or
0:13:25 are they saying, hey, you know what, we really like those engineers, but all these sales guys,
0:13:27 all these product guys, you know, we don’t need them.
0:13:31 And so like we’re going to, you know, incent the engineers to stick around, but quite frankly,
0:13:34 we want you to lay off everybody else before you kind of, you know, come over.
0:13:37 So those are, I think those are the most important things, which is kind of, you know, what is
0:13:38 going to happen to the employees?
0:13:40 What does the go-forward business look like?
0:13:44 And you know, again, I know we all get excited and we like to talk about the price because
0:13:48 of course it’s a lot more fun and sexy to talk about money, but it’s, I think, I think,
0:13:52 you know, managers and CEOs make their reputations quite frankly in these types of situations
0:13:55 where, you know, they are thinking first and foremost about kind of the prospects for their
0:14:01 employees and their team members, you know, kind of, you know, not secondary to the actual,
0:14:02 you know, value of the company, right?
0:14:03 So who’s getting a job?
0:14:04 Who’s not getting a job?
0:14:05 That’s right.
0:14:07 What are the terms of the stock options?
0:14:08 That’s exactly right.
0:14:10 What’s the financial incentive look like, right?
0:14:12 Are they going to give you new stock options in the new company or are they just going
0:14:15 to take the ones you had and move them over?
0:14:18 Sometimes people do what are called retention bonuses, right, where they say, hey, you know
0:14:22 what, like, for the first two or three years of the deal on each of the one-year anniversaries
0:14:25 of the deal, if you’re still here, we’re going to give you maybe a cash bonus or we’re going
0:14:27 to give you a stock bonus.
0:14:30 So all those things that kind of allow you to kind of get a better sense of what is that
0:14:34 go-forward structure going to look like and is that something that you as a CEO believe
0:14:39 you can sell to your employees to say, hey, look, you know, we gave it a shot, we did well,
0:14:42 and now here’s an opportunity for you to both enjoy financial reward as well as feel like
0:14:47 you’re enjoying the reward of being in a bigger company and having access to more resources.
0:14:52 I hear that sometimes in these cases and also with the recaps or the down rounds, there
0:14:54 are these things called management carve-outs.
0:14:55 Yes.
0:14:56 What are they?
0:14:57 Yes.
0:14:58 Should I be looking for one?
0:14:59 Is that a good thing, a bad thing?
0:15:01 Yeah, sometimes you’ll see, yeah, management carve-out, management buyout, MBO sometimes
0:15:02 is what they’re called.
0:15:07 Yeah, so the basic idea is typically sometimes what happens is, and it goes back a little
0:15:10 bit to this liquidation preference discussion we’re having, is the company might be doing
0:15:15 well, but there may be so much money invested in the company that even in a nice acquisition,
0:15:19 a lot of that money ends up going towards people like me, the VCs, as opposed to you
0:15:22 and the people who are going to actually go have to run this business now.
0:15:26 And so oftentimes what the VCs will do is say, “Hey look, we want to incent you to kind
0:15:30 of be motivated to try to find a buyer for this business if we all agree that that’s
0:15:32 the right outcome for the company.”
0:15:35 And so essentially the VCs will say, “Look, let’s carve out some of the money that might
0:15:40 have otherwise gone to the VCs or in some cases other common shareholders and make a
0:15:44 pool that effectively becomes a bonus pool for the executives and/or the people who are
0:15:46 responsible for the acquisition.”
0:15:49 And that’s a perfectly fair and reasonable thing to do.
0:15:52 We do it, you know, in many cases in that scenario.
0:15:56 And then in addition, on top of that, sometimes the acquire themselves will also put an additional
0:16:01 incentive pool in place and say, “Okay, as we talked about post the acquisition, maybe
0:16:05 on the first and second and third year anniversaries or something, we will also contribute to a
0:16:08 pool that will inset longer term retention for people.”
0:16:09 Got it.
0:16:16 So the management carve out pre the transaction is about, “Look, this is the way the waterfall
0:16:17 would have worked.”
0:16:18 That’s right.
0:16:20 And that’s the portion of it and basically giving it a choice.
0:16:21 That’s exactly right.
0:16:22 Yeah.
0:16:23 So think of the just time periods, right?
0:16:26 Which is kind of, you know, let’s reallocate some of the dollars to the existing shareholders,
0:16:29 you know, and then post and post, you know, acquisition as we talked about.
0:16:33 It’s just an incentive structure to kind of create a long-term, it’s like new options.
0:16:34 That’s exactly right.
0:16:35 Yeah.
0:16:36 Got it.
0:16:37 Good.
0:16:38 Well, let’s talk about the happy scenario.
0:16:39 We’re going public.
0:16:40 All right.
0:16:41 We don’t want to end on a depressing note.
0:16:42 Yeah, of course.
0:16:43 Exactly.
0:16:44 Here we go.
0:16:45 This is what Silicon Valley does, is create IPOs.
0:16:53 So maybe talk a little bit about picking an investment bank and what are some of the incentives
0:16:54 they have.
0:16:55 Yeah.
0:16:56 And they bring the bear.
0:16:58 And are they always aligned with my existing investors or can they be?
0:16:59 Yeah.
0:17:00 Yeah.
0:17:01 Sort of differently.
0:17:02 Yeah.
0:17:04 The investment banks, you know, you’ve heard of these names, Goldman Sachs, JP Morgan, Morgan
0:17:05 Stanley.
0:17:08 You know, their main job is to kind of, you know, help you prepare for the IPO and make
0:17:10 sure all the documentation of things ready.
0:17:13 And then to basically kind of shepherd you through the process by introducing you to
0:17:17 all the relevant institutional investors who will hopefully go on to kind of, you know,
0:17:19 be the long-term shareholders for your business.
0:17:21 And so, you know, they do that.
0:17:22 They’re professionals.
0:17:23 They do this all the time.
0:17:25 So, you know, you certainly generally don’t go through that process without an investment
0:17:26 banker.
0:17:31 Where the conflicts potentially come up is, you know, they’ve got kind of two clients,
0:17:36 right, which is you’re their client for this transaction, but, you know, a firm like Fidelity
0:17:42 or T-Row Price or BlackRock, who is a institutional investor who buys, shares all the time in lots
0:17:47 of IPOs and also trades, shares through the desks that the firms have.
0:17:48 They’re also a client of the bank, right?
0:17:49 And so, there’s this tension.
0:17:54 You see this in the pricing for when IPOs are priced, where your incentive as the entrepreneur
0:17:58 is I want the price to be as high as possible because that means I raise more money for
0:18:01 less dilution, right?
0:18:04 But I don’t want to be too high where obviously the stock trades, you know, kind of poorly
0:18:05 the next day.
0:18:08 And, you know, the financial investor has the opposite incentive, of course, which is
0:18:12 I’d like to buy it as cheap as possible so that I have the maximum amount of upside in
0:18:13 the stock.
0:18:16 And so, this is where I think sometimes, you know, sometimes fairly and sometimes unfairly
0:18:21 I think that bankers, you know, are accused of potentially kind of favoring the institutional
0:18:25 investors because they are the repeat players for the business at the expense sometimes of
0:18:26 the company.
0:18:30 Having done this once, you know, I was a banker, you know, earlier in my career and having
0:18:34 seen the process, I, you know, there’s always some, you know, I think true to that, but
0:18:38 I think more likely these are just more art than science, quite frankly, and it’s really
0:18:42 hard to know based on the demand signals that they get exactly where to price the stock.
0:18:46 And so, you know, sometimes they get it right, sometimes they don’t, I think it’s probably
0:18:49 a little bit unfair to assume that there’s all kind of nefarious, you know, activity
0:18:51 at work here.
0:18:53 And what do I want to get out of my board in this situation?
0:18:56 Are they basically sort of at this point not that important?
0:19:00 Yeah, the board really starts to shift as you go public from being kind of, you know,
0:19:03 more active and probably more, you know, in some cases, more valuable in the business
0:19:07 to more of, quite frankly, a governance and a legal board in that sense, right, which is
0:19:11 making sure that the process is good, making sure that you’re doing your audit committee
0:19:12 and all the other things.
0:19:16 So it’s not that boards are irrelevant as a public company, but I would say the nature
0:19:20 of where boards spend their time starts to shift towards more compliance related activities
0:19:24 versus kind of, you know, potentially forward business looking activities.
0:19:25 Great.
0:19:26 Fantastic.
0:19:28 Well, Scott, thank you for spending so much time demystifying this entire process.
0:19:32 I appreciate it and I hope this is helpful and I hope people will find, you know, they
0:19:35 can go buy the book and, you know, dig deeper into a lot of these topics.
0:19:39 Yes, there’s one big takeaway from having written the book and then been on the circuit
0:19:40 promoting it.
0:19:42 Like, what’s the big takeaway you would want entrepreneurs to take?
0:19:46 Yeah, look, I think the biggest thing, and we hit on a lot of this, is, you know, look,
0:19:49 understand, you know, who your partner is, as I mentioned, you know, somewhat facetiously,
0:19:51 but it’s true, you know, these are marriages, right?
0:19:55 You’re going to be with these companies for eight, 10, 12 years.
0:19:58 And so, you know, I don’t want to over strain the analogy, but the concept of dating and
0:20:02 understanding them really is relevant here, which is, you know, you wouldn’t get married
0:20:05 without really understanding your spouse and who they are and what makes them tick.
0:20:09 And I think in many respects, that is the equivalent of the dating process in the venture capital
0:20:13 game is know what their incentives are, know what they’re interested in, and, you know,
0:20:14 make sure you’re aligned.
0:20:15 Great.
0:20:16 All right, congratulations.
0:20:21 You’ve made it to the very end of part three of our three-part series with Scott Cooper.
0:20:25 Hopefully, you’ve got a really good sense of what goes on inside our heads when you meet
0:20:30 with us because you understand what our incentives are, how we work, and how we’re trying to help
0:20:34 you build a big, great, durable software business.
0:20:40 We hope that this encourages you to continue your entrepreneurial journey, that it demystifies
0:20:41 part of the process.
0:20:44 Look, we’re in this together.
0:20:47 Entrepreneurs and investors are here to change the world together.
0:20:49 And yeah, there’s going to be tension on the line.
0:20:51 There’s going to be times when we disagree.
0:20:56 But fundamentally, we need to be about being side by side entrepreneur and investor because
0:20:59 that’s the way that we get to change the world.
0:21:02 So, we encourage you on your entrepreneurial journey.
0:21:07 And if you’ve got a company that you’re building that seems like a good fit for the types of
0:21:10 investments we make, the house is open, and we’d love to meet.
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