The following reflects questions prepared by a software company CEO and put to Houston Ventures. We believe these questions form important selection parameters for any company contemplating industry-oriented equity capital. If your question is not answered below….please call us or mail us so that we may be responsive.
Q: Who can you introduce me to that I can’t get to on my own?
A: Many times we can get you to places you can not get to under your own power. Part of our role is to help you prepare to a level of sophistication that supports the potential value of injecting high into an organization.
Q: Can you take me a level higher in the organizations I’m already in?
A: Many times yes. We can also provide perspective on when is a good time to do so based on what we may learn to be priorities of a target. You are likely to hear from us in those circumstances.
Q: Do you understand my market & my customers or is there a “cost of education” for my new investors?
A: We are hopeful that our specialization in energy and process improvement brings to the table perspective on the market and many of your customers not yet internalized by you. Although the O&G industry is global much of it is concentrated in Houston which fosters HV market intelligence. We are constantly endeavoring to feed incremental intelligence across the portfolio and do so because it is possible.
Finance / Corporate Governance
Q: Is your money going to come with a significant overhead (tangential information requests, day-to-day “interference” etc.)?
A: We will establish a framework with you that we hope ultimately is “set and forget”. We have found that most times that framework has important internal application for managers to run their business. These provide insight typically from which managers of younger companies have not yet benefitted. We leave it up to them to decide usefulness and find most times they sustain.
Q: Will your Board member pull on the same rope, in the same direction?
A: A good board member does not dictate. A good board member questions and thusly inspires. Good boards work together to form a common view/perspective that shapes objectives and tactics and thereby affects a common direction.
Q: Are you capable of additional funding?
A: The fund has two mechanisms for additional funding: a) we generally hold reserves equal to the initial amount invested for growth support contingencies,and b) our LP base is substantial and we have used it before as co-investment in support of large capital requirements.
Q: How can I be comfortable that additional funding will be on “reasonable” terms?
A: It is of no interests to us to complete a funding that leaves the issuer unhappy. Unhappy issuers have a tendency to become distracted taking them off-task. Many times, we will help the company go out looking for third-party equity as it is in our interest to have such parties set the market price for our own valuation reporting. This is how we show progress until any liquidity event occurs.
Q: How is my company positioned vis-a-vis your other portfolio companies?
A: Part I – Many times we find overlap across the buying teams to whom our portfolio companies sell their products/services. We attempt to find synergies here.
Part II – The more recent investments get the most support. We consult with each to develop basic tool kits for problem solving and success. Our goal is to provide tools sufficient for each portfolio company an evolutionary path to a high degree of sophistication and self-reliance.
Q: Can you help me find good / better people?
A: There is an expression in the business, “the problem is not what, the problem is who”. The value of finding contextually experienced people is that problems are solved quickly. It is a core part of our offering to help portfolio companies get A players.
Q: Can you share helpful comp models that I can use?
A: The value of an effective comp model is that it lowers bad turnover and accelerates good turnover. In addition it affects required co-operation in a very dynamic environment.
Q: What are the HV exit triggers?
A: Most of our investments find liquidity through sales to commercial buyers. It generally occurs at a time when a buyer’s salesforce realizes that the portfolio company serves a positioning need in the acquirer’s sales process. At the time of this realization, the portfolio company has generally achieved a scale significant enough to warrant market attention. During this pivotal moment the “market” is declaring that a market is forming for the company’s stock. In this context many times an exit is driven by the buy side of the market as the time for potential buyers becomes good. It is our job at this point to convince the pool of should-be interested buyers that the market for the stock is significant.
Q: Where does my company sit vis-a-vis the Fund timeline?
A: An expiration of a fund’s legal life does not necessitate a sale of a portfolio company. If a company is prospering we likely will distribute stock to our LP’s.
Q: What management team characteristics get you excited?
A: We want to sense that a management team is going to be “ahead of the board”. Simply stated this means by some time definite…management has evolved to a point that the board comes in to learn not to educate. A trait we see early on for many successful management teams is the speed at which they will create and test the right theories and appropriately adopt or dismiss. Some of this is building the airplane in the sky which requires dexterity.
Q: How do you measure value in a prospective portfolio investment?
A: At the most simple level we want to believe (i) that it can grow, (ii) that the growth can become profits, and (iii) that the profits are sustainable. Truth be told we are many times “buying the industry problem” as much as the management team. Growth is a barometer for the priority and magnitude of the industry problem. We also like to think the problem evolves as its parts are incrementally solved.
Q: As a VC fund – what are your corporate values?
A: Many times the market dynamic between portfolio company and investor is employee/boss. We believe this leaves everyone confused and is unproductive. If everyone received value in the initial trade….then it is unreasonable to live with an imbalance. We do not want subservience and it makes us nervous.
Q: On what basis do you turn down investment opportunities? How do you qualify?
A: Most technology solutions are based on a business case. We are big believers in hard-dollar ROI solutions and the respective sales process. If a company can not articulate these things to us….they likely can not get their prospects to do so….which means they likely can not determine what is real in the sales pipeline. There are a lot of factors that determine qualification of a deal….but this is a hot button.