You Can’t Report to Yourself

Everyone needs someone to report to; even VCs.

This may sound strange coming from a VC. Some entrepreneurs who choose to raise venture capital have great disdain for the necessary evil of reporting to their investors. That disdain is appropriate to the extent investors are asking for mundane information that creates a reporting burden and does not add information necessary for critical board decision-making. But entrepreneurs that cross the line and don’t like to report because, well, they don’t want to report to anyone, are making a great mistake. There is no excuse for not wanting to stand and be counted; no excuse for not wanting to answer difficult questions; no excuse for not wanting your thinking challenged. I once interacted with an entrepreneur who chose another investor over us because, “we understood the business too well”. Apparently this entrepreneur thought my understanding of his business would be a “burden”.

VCs have someone to report to; Limited Partners and Advisory Boards. Yesterday, my Partners and I reported on our progress here at Meritage Funds to our “bosses”, our Limited Partners and Advisory Board, at our Annual Meeting. In a series of sessions, we stood and were counted; we answered difficult questions; our thinking was challenged. In presenting our progress, we strive for transparency and to give a balanced view to our Limited Partners. We talked about the elephant in the room – the difficult macro-economic environment and the difficult fundraising landscape for venture capital funds. We shared our enthusiasm for the opportunity to invest the capital we have raised in our Fund III and the excitement over the opportunities we are currently evaluating. We talked about our failures and the lessons learned. We talked about the challenging spots in our portfolio as well as the upside opportunities. And most importantly, we told our bosses what we were doing to capture the opportunities we’ve created and what we are doing to minimize the risks we see. The picture we drew was not all rosy and bright, nor dark and depressing; it was balanced. In addition to the annual in person meeting, we send written quarterly reports, have quarterly Advisory Board meetings, and a semi-annual conference call that all Limited Partners are free to attend.

We don’t report to our Limited Partners and Advisory Board because we have to, although we do. We do it because it is a good and valuable discipline. If we could convince our investors to gather quarterly, we would be thrilled. The process provides us with the opportunity to record and contend with the facts; to deal with harsh reality; to account for decisions we have made in the past, and to explain and justify what we are going to do next. For us, this is a valuable exercise; one we cherish. The feedback we receive is invaluable and helps to shape and reframe our thinking in constructive and positive ways.

Many entrepreneurs share this view. Such entrepeneurs use their Boards of Directors as sounding boards. They report with transparency and share not only what they have accomplished, but also where they have failed. These entrepreneurs cherish the opportunity to stand and be counted. I like this kind of entrepreneur. They understand that you need someone to report to; and that you can’t report to yourself.

You Can’t Report to Yourself