https://berkonomics.com/?p=3697&utm_source=rss&utm_medium=rss&utm_campaign=investors-your-board-and-you-who-controls-strategy Dave Berkus' business insights Sun, 20 Jan 2019 23:59:08 +0000 hourly 1 https://wordpress.org/?v=6.9.4 https://berkonomics.com/?p=3697&cpage=1#comment-125191 Sun, 20 Jan 2019 23:59:08 +0000 https://berkonomics.com/?p=3697#comment-125191 I have been in two situations where investor board members, citing their “market expertise,” pushed the company in directions that were counterproductive and ultimately resulted in the company squandering its market leadership and being sold under less than favorable terms. I’m sure this scenario repeats itself time and again, for both neophyte and experienced CEO’s. I don’t have an easy solution other than to say if you’re raising $$ and have the luxury of being selective about who you accept investments from, perhaps do a bit more due diligence on the potential investors to get a sense of their history with other companies in which they’ve invested, and to determine whether their “market expertise” is for real or a figment of their own imaginations. You also run into investors who do have actual market expertise but haven’t kept up with, or are unprepared to adjust to, changing times in their particular business sectors. I agree with Mr Lipper that VCs often overrate their own market expertise and knowledge, because (a) they follow the herd like everyone else, and (b) don’t take the time to learn how certain companies, or even certain industries, really work.

]]> https://berkonomics.com/?p=3697&cpage=1#comment-124983 Tue, 15 Jan 2019 17:16:09 +0000 https://berkonomics.com/?p=3697#comment-124983 The reality for many companies using equity-related securities to fund their business is that they lose control of the company and frequently their management position. In part, this is due to not having raised sufficient capital to reach cash flow breakeven and also a failure to understand that the representatives of investors on boards are not representing the interest’s of the founders, but primarily the investors, It is a natural conflict. Royalties, a percentage of revenues, do not vote nor to the royalty investors have the ability to force their views on management. Venture capitalists will usually believe they have great knowledge as to what management should do.

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