Venture Capital Turnaround Services

No one’s going to confuse 2013 with the heady days of venture capital investing years ago.  Being a venture capitalist must be one of the toughest jobs going – you are asked to deliver increasing returns, with fewer resources.  Raising new funds is increasing difficult, and dealing with existing portfolio companies needs has become difficult at best.  Your odds of success are no more than one company in ten.  Although you actively oversee your portfolio of companies, you just don’t have the time or resources to deal with those companies that are underperforming.  You spend more time managing and less time investing.

We believe there are 5 key ingredients to successful venture-backed businesses: excellent people, product, market, timing and luck.  The technology highway is littered with the road kill of fantastic technology that was too soon for the market, companies that perhaps burnt too much fuel too early and didn’t have enough to make it to the ultimate destination or companies with the wrong product execution or failed sales and marketing strategies; Companies with significant value left untapped with no growth or worse simply shut down.

During these types of circumstances the venture capitalist backing an underperforming technology company gets more and more involved in the day to day running of the business.  In many cases VC Partenrs are forced to take an active roll within the company.

Eventually the VC has a difficult decision, “do I continue to invest?”, “do I bring in another investor and suffer severe dilution?” or “do I cut back to the bare bones, batten down the hatches and ride out the storm until management finds passage to the new world?”  or “do I shut the company down?”

The problem with these courses of action is that, in the acrimonious debate as to why the company hasn’t lived up to expectations and why the VC is limiting further investment, quite often the original management team either bail out or are pushed out.  Who will then steer this corporate boat that has run aground?

The issue for the VC is that they have to steer the boat themselves or bring in a new CEO and team.  Why would a top class executive leave a top class job to take on this challenge?  The truth is most won’t. The VC will have to find executives who are “out of a permanent role” who will “give it a go”.   Finding such a CEO or team takes valuable time and effort.

Therein lies the VC turnaround problem, the new interim management team are people who don’t believe in the product or the company and lack the resources to systematically capture and maximize all the value of the underperforming company.  There is no passion or belief from the new management team only from the investor and without passion the chances of success are quite limited.

In the meantime the VC has had to put in another round of funding to give the team some sort or running chance.  The board room becomes demoralized and ready to cut their losses.

Some of the best technology successes have come about after a turnaround, but the odds are stacked against rather than for.  The challenge for the VC must be to find a co-investing entrepreneur, a team from a previous success or to retain some essence from the original founding team who can spread the belief augmented with a new CEO.  All of this takes valuable time, capital and significant management oversight.

E-mail: rob@kheperagroup.com