The pandemic has magnified the importance of entrepreneur reference checks and the need to verify the strength of the co-investing syndicate during the due diligence period.
When startups are ready to graduate from the early bootstrapping days, founders have to quickly learn how to navigate the waters of board building, board relations, and corporate governance. Who do you ask? How do you compensate them? How do you compensate yourself?
Pascal Levensohn knows the answers to these questions; he has been part of the Silicon Castles family from the very beginning and we are thrilled to welcome him back as a faculty member of this year’s Startup Executive Academy to teach all things investment & board.
Pascal Levensohn is the Founder and Managing Partner of Levensohn Venture Partners and Senior Managing Director of Dolby Family Ventures. He has invested in over 100 startups since 1996 and is vastly experienced as a public and private company director. Pascal is based in San Francisco, serves as Chairman of NativeWaves, and as the Vice-Chairman of the Board of Authentic Vision, two Silicon Castles Diamonds, and former SEA startups.
SC: What should startup executives remember to consider when building a board?
PL: Independent board members should be properly motivated (which means compensated in equity) to add value, to question you, and to actively oversee your activities. Surround yourself with people who will call you out and disagree with you if you’re doing something wrong. Professional fund investors in startups should not get additional compensation as directors because their funds are compensating them for this role – it is their job. Seek out directors who have expertise in your field and who know a lot more than you do about business strategy because they have done it before.
SC: Board relations can be tricky to navigate. What is a challenging situation in which founders often find themselves? How do you recommend they successfully navigate it?
PL: Founders always want to avoid dilution of their equity ownership stakes but are often not willing to accept the responsibility of failures to execute on their plans. Being realistic about who is responsible for business execution and respecting the value of risk capital can go a long way to reducing these types of tensions on the board.
SC: What do you look for when you’re considering investing in a startup?
PL: A defensible technology that is breakthrough in nature and a credible team that I can believe will actually do what they say they are going to do.
SC: Will this pandemic change the things you look for in a startup’s investment proposal?
PL: While the pandemic itself has not changed the information necessary in an investment proposal, it has magnified the importance of entrepreneur reference checks and the need to verify the strength of the co-investing syndicate during the due diligence period. To the extent that in-person meetings are not possible prior to the closing of an investment, it is essential for both entrepreneurs and investors to develop viable alternatives to direct personal conversations. While Zoom calls are helpful, video conferencing alone does not allow small teams to build the kind of rapport that leads to trust and understanding in the very challenging environment of startups. This applies equally to interactions between investors, especially active directors, where the pandemic has prevented travel for board meetings and informal meetings with the management teams. It is challenging to make important strategic decisions without the benefits of in-person interactions. For European companies with an investor group that is international, the problems are only magnified. As a result, many investors are choosing to contact entrepreneurs they have backed before, where there is an existing bond of trust, to consider funding them again in a new project, or to access their trusted network of colleagues to find new entrepreneurs worthy of support.
During the SEA20 Online, Pascal will lead a session on Investment, together with Silicon Castles’s CEO Andreas Spechtler. They will introduce you to the different types of investors and how to deal with them, building and managing your board, and what a solid investment memorandum should include.
When: October – December 2020 What: Hands-on, practical sessions on Business Model & Strategy, Storytelling, Value Proposition, Pricing, Sales, Negotiation, and Investment For whom: Early stage tech startup founders & executives By whom: a world-class faculty of former and current leaders of global companies and experts from academia, led by Prof. Baba Shiv from the Stanford Graduate School of Business