How to be a great investment director

What are the ingredients needed to make a good investment director? How about a great one? In a new BVCA paper, David Mott, Chair of the BVCA Venture Capital Committee, explores the wide array of skills and attributes needed.

The relationship between VCs and founders is an interesting one. You need to be close, yet not native. You are helping to build the company, yet also represent your VC fund. During the journey of the investment, your values, your professionalism and your relationship with the founders will be tested many times.

'Be courageous'

To claim the soubriquet ‘good’ — and maybe even ‘great’ — is one that hopefully everyone working on the deal-side in the VC industry aspires to achieve. It goes beyond simply selecting the right deals and delivering a strong return for your firm and its investors.

'Understand the business from a founder’s perspective'

To be a good, or great, investment director requires a wide array of skills and attributes, including but not limited to relationship-building, people management, strong analytical ability as well a good understanding of market and technological trends.

'Develop empathy with the founders/entrepreneurs'

Given the importance of venture and growth capital to creating and building the businesses of the future, identifying the traits of what makes a good investment director is vital to the development of our industry and the economy as a whole.

'How you act when the company is going through difficulties is key'

In a new paper published by the BVCA, David Mott, Chair of the BVCA’s Venture Capital Committee, explores the various issues an investment director has to juggle, from board governance and relationship building, to dealing with difficult people and how to manage an investee business and knowing when to leave the board.

Below is a sample of the paper, which draws on the insights of industry experts and showcases best practice and innovations to consider. For the full version, please visit the BVCA website here.

Ten benchmarks for good board governance

1. Governance handbook/board terms of reference — set out the board processes and how key decisions are made. Clarity is vital.
2. Board membership — get the right balance of skills and expertise for the company. Who needs to be on the board needs careful thought.
3. Board size — practitioners argue that the optimum is around five to seven people but it depends on the size/type of business and number of investors. The frequency of board meetings also needs careful consideration — 10x per annum is most common.
4. Committees — consider whether the company needs separate risk, audit and remuneration committees. These need to have the right balance of people from the board.
5. Board agenda and papers — establish who sets the agenda and what is the best format for the papers to be presented. Papers should be circulated several days in advance.
6. Risk register — make sure that the management team review with the board what they consider to be the biggest risks — business, legal and regulatory. Needs to be updated as the company develops.
7. Chair/other NEDs — use an external Chair or independent adviser to give an objective view and help resolve any conflicts.
8. Reporting/internal controls — set KPIs early on and insist upon rigorous internal controls.
9. Stakeholders — understand and identify who drives the success of the business. Consider aspects of employee ownership or including a director responsible for employee interests.
10. Culture and ethics — what role should the board play in setting the culture at the company? Whistle-blowing and complaints procedures should be carefully considered. Engender a compliance culture and address legal and reputational risks head on.

Establish authentic relationships with founders/entrepreneurs

1. Be frank, honest and open from the outset.
2. Ensure that you are a good fit with the founder and their team. You should be frank with the founder if you have concerns to see how they react. Once you establish a conflict resolution mechanism with the founders it will be easier to resolve problems if the company faces difficulties.
3. Get close but not too close — some investment directors like to develop close personal relationships with founders, but it shouldn’t get to the point where it clouds your judgement. This can also be difficult for founders as they require advice from investors to make the best decisions rather than have ideas imposed upon them by investors.
4. Develop a good relationship with entrepreneurs that you don’t invest in. By giving feedback and advice, you have demonstrated your value to them which will enhance your reputation and help win deals in the future.

From good to great

1. Be courageous — when you meet hurdles, check that the direction and approach are right before criticising or changing things.
2. Understand the business from a founder’s perspective. If a founder is raising money for the business, they often focus on the money rather than what deal is good for the business. The director can help them put things in perspective.
3. Develop empathy with the founders/entrepreneurs. The best VCs are contextual in the advice they give and the ways they challenge decision making. They set specific action points and see what the management is able to deliver.
4. How you act when the company is going through difficulties is key, as your reputation among entrepreneurs can suffer if you react badly. However, you also need to consider how much time you spend trying to improve under-performing businesses, so you don’t neglect those performing well in the portfolio.

The full paper is available here.

Special thanks to my colleagues who contributed to the debate and shared insights, in particular:

Brett Akker, Lovespace

Fred Destin, Stride VC

Susanne Given, Push Doctor & Made.com

Simon Murdoch, Episode 1

Simon Witney, Debevoise & Plimpton

Tim Hames and Chris Elphick, BVCA