56. The Hands-on Investor | High-Engagement Investing, Part 2 (John Greathouse)

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John Greathouse of Rincon Venture Partners joins Nick to cover The Hands-on Investor | High-Engagement Investing, Part 2. We will address questions including:

  • Greathouse High Engagement Startup Investing
    The nature and the intensity of your interaction changes over the course of a startups development.  At what stages are you pulling back and getting more hands-off?
  • Accelerators often have the appearance of being very hands-on, but many say they are just using an index investing strategy and outsourcing the advising.  What’s your stance here?
  • What are your thoughts on venture firms that are high volume, low-engagement?
  • What’s a realistic number of portfolio companies in which an investor can be highly engaged/active?
  • Other specific thoughts on where an investor can be most helpful?
  • Can you talk about some of the things you’re currently up to and most focused on?
  • If we could address any topic in venture, what topic do you think should be addressed and who would you like to hear speak about it?
  • Any quick thoughts on Title III and what that might mean for the startup fundraising landscape?
  • What’s the best way for listeners to connect with you?

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Guest Links:

 

Key Takeaways:

 

1- Building Institutional Mass

John stated that the single biggest impact a VC can have at the early stages, is on recruiting. he stressed the importance of “Putting the right person in the right company at the right time.” It can be a big challenge to recruit top talent and build a team, very early-on. John stressed focusing on roles that can help address the key company objectives. Needs will vary by business type, but he mentioned a Sales leader, Marketing leader and a financial person to manage payables and receivables. And the primary way that John helps is by using his network to find great candidates and actually conducting interviews to vet the individuals and find the right team for his portfolio startups.

 

2- Types of Involvement

  • Marketing: John aims to drive inbound over outbound marketing, through methods like content marketing. He referred to this earned marketing instead of paid marketing. How do you get customers to come to you instead of just hitting them with advertising?
  • Sales: With regards to sales, John encourages founders to not be afraid of hiring sales people in front of revenue. Sometimes the entrepreneur needs to be pushed to spend a little money. Part of what got them to a stage where they can take venture funding is that they bootstrapped and were very frugal. This is a great characteristic, but can make it hard to change the mentality and spend money when it’s the right time to spend.
  • Executive Leadership: For the first 12-18 months, John will act as an adjunct member of the executive team. Not only offering strategic advice but also getting hands-on and making tactical actions. As the company scales and fills in the executive seats around the table, the interaction becomes less frequent. Moving from weekly calls to one every couple weeks and then maybe one per month.
  • Alignment: Smaller volume, more engagement. Maybe they’re not going to be the highest valuation, but they will really put in the work to help achieve the milestones. And they will even align themselves from an equity standpoint w/ the entrepreneurs so that everyone has the same agenda.
  • Learnings from previous challenges: John also talked about how w/ their focus on a B2B SaaS, they see a similar set of challenges, especially on the marketing-side. And for many founders, this will be their first time encountering these challenges. So, John is able to leverage learnings from the portfolio and help new companies navigate their marketing challenges.

 

3- Level of involvement

John and I discussed the number of companies in which he can be highly engaged. He said that:

  • Rincon typically comes in as an investor at 40-50k/month range in MRR… where they are well on their way to reaching $1M in annual revenue. And as these portfolio companies grow from 1-5M, Rincon is very involved and interaction is at the weekly level. A manageable number of portcos at this stage, from John’s standpoint, is 4-6.
  • When a startup reaches the $5M-$10M range in annual revenue, this is when they begin stepping back and working at the bi-weekly or monthly level of involvement. They can have another 4-6 portfolio companies at this stage.
  • And, post $10M in annual revenue, the startup has reached that growth phase and they begin working more with growth-stage investors at that point. This is where John’s level of interaction scales back to participation in quarterly board meetings.

 

Tip of the Week:  Hardware as an Anchor

 

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