Writing the check is the easy part.
What happens after the money goes into the company is where I believe investors can make a real difference.
Over the years, I’ve developed a simple phrase for my approach to investing:
I babysit the money.
That doesn’t mean micromanaging founders or trying to run their companies. I invest in people because I believe they are capable of building the business. But I also don’t believe in wiring money, wishing everyone good luck, and waiting for the next investor update to find out what happened.
My philosophy is that capital should come with access to resources that can help the company succeed.
A Check Isn’t Always Enough
Many groups do more than simply provide capital. They monitor their investments, make introductions, provide advice, participate on boards, and help portfolio companies overcome problems.
I agree with that philosophy, but I’ve tried to take it further by building an ecosystem of services and relationships companies can draw on when they need them.
Early-stage and growing businesses rarely fail because they lack ideas. More often, they encounter a series of practical problems.
They need customers.
They need publicity.
They need better financial controls.
They need to attract and retain employees.
They encounter regulatory or governmental issues.
They need insurance, benefits, or warranty programs.
They need introductions to additional capital.
Sometimes they simply need someone who has encountered a similar problem before.
Building all of those capabilities internally can be expensive, particularly for a young company. My approach is to give companies access to an existing network rather than expecting them to build everything from scratch.
Building an Ecosystem Around the Investment
Over the years, I’ve developed businesses, partnerships, and professional relationships covering areas including:
Public Relations — Helping companies develop their story, gain visibility, communicate with stakeholders and respond when something goes wrong.
Marketing — Helping companies reach customers, investors and other important audiences through data, digital marketing and direct outreach.
Finance and Capital — Assisting with financial strategy, capital planning, investor relationships and introductions to potential funding sources.
Employee Benefits — Connecting companies with programs that can help them compete for and retain employees.
Warranty Programs — Helping appropriate businesses use warranty and protection programs to improve their customer offering and potentially create additional revenue opportunities.
Governmental Affairs — Helping management understand government, regulation, and public policy when those issues affect the business.
Other resources are available depending on what a particular company needs.
The important distinction is that I’m not trying to sell every portfolio company every service.
The ecosystem exists to solve problems.
If a company doesn’t need something, there is no reason to introduce it. When a need arises, however, I would rather be able to make a phone call and put the right resource in front of management than watch a preventable problem grow.
Protecting the Investment Without Running the Company
An important line exists between being an engaged investor and becoming an interfering investor.
Founders need room to operate.
An investor sitting on the sidelines contributes very little beyond capital. An investor constantly telling management what to do can become an obstacle.
I try to operate between those extremes.
I want to understand how the company is performing, where the problems are developing, and what management believes it needs. Then I can determine whether someone in my network can help.
Sometimes that means making an introduction.
Sometimes it means asking a difficult question.
Sometimes it means helping management evaluate several options.
And sometimes the right answer is to stay out of the way.
That’s what I mean when I say I babysit the money.
Capital Plus Resources
I don’t believe investors can eliminate the risk of early-stage investing. Even good companies with talented founders and adequate capital can fail.
But investors can improve the environment surrounding an investment.
If I’ve invested my own money—or brought an opportunity to people who trust my judgment—I have an interest in doing more than watching the company’s bank balance decline.
I want management to have access to the relationships, experience, and infrastructure we’ve accumulated over the years.
The goal isn’t to guarantee success. Nobody can do that.
The goal is to give a good company more tools with which to succeed.
That’s why, after the check clears, I don’t consider my job finished.
That’s when babysitting the money begins.