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Last Thursday, January 31st, BPV Venture Partner Don Burton was honored by the Florida Venture Forum with its inaugural Champions Award in recognition of his pioneering work in establishing and growing the state’s venture capital industry. Drew Graham, Co-Founder of Ballast Point Ventures, had the privilege of introducing Don at the Champions Award Dinner. The text of his remarks, as prepared for delivery, are below.
Champion’s Award Dinner
Sawgrass Marriott Golf Resort & Spa
Ponte Vedra Beach, Florida
January 31, 2013
It is my distinct honor this evening to introduce Don Burton, and I am so pleased that the Florida Venture Forum has decided to honor him this evening with the inaugural Champion’s Awards for his outstanding contributions to the Florida venture capital community.
To know Don as well as I do is to know that he is not a man who has ever sought personal acclaim or public recognition of his accomplishments. But those achievements and his contributions to venture capital in Florida and the Southeast speak for themselves and are well known to anyone who has been active in the community over the past thirty years.
By way of background, Don grew up in Macon, Georgia and graduated from Yale University. He served as an officer in the United States Navy prior to graduating from Harvard Business School in 1971. Don began his investing career as a Securities Analyst at Fidelity Management and Research Company in Boston. However, Don was particularly interested in investing in private companies, so in 1973 he joined Fidelity’s venture capital subsidiary, Fidelity Venture Associates, which was one of just a handful of venture capital firms at a time when the industry was just beginning to gain its footing in Boston.
Don covered the Southeastern United States for Fidelity Ventures, which meant he made regular visits to Florida looking for opportunities for the firm. And in 1979, he and his lovely wife Campbell (who is also with us this evening) made the bold decision to move to Tampa, Florida. Though a number of his Boston colleagues were puzzled by his decision, Don had a strong desire to return to the Southeast and he recognized the immense opportunity the region offered for a venture capital firm based here.
Don founded The Burton Partnership in 1979 and South Atlantic Venture Funds in 1983. Between 1983 and 2001, Don was the Managing Partner of four South Atlantic Funds, ranging in size from $18 million to $75 million, and invested in over 65 private growth companies in Florida, the Southeast and Texas. The South Atlantic Funds generated a truly impressive 31% gross annualized return on all investments over that period and even more impressively a total gains-to-losses ratio of almost 5:1 which validated the South Atlantic strategy of achieving attractive returns while minimizing the risk of loss of capital.
The businesses Don backed, which included companies such as Telecom USA, Powertel, Knology, Regal Cinemas and Outback Steakhouse, generated billions of dollars in shareholder value and helped to fuel economic growth and entrepreneurial success in Florida and the Southeast. More importantly for those of us here tonight, his success in helping to prove to the skeptics that the Southeast is an attractive market for investment helped to promote the growth of venture capital in our region, and his South Atlantic protégés went on to found several active Florida investment firms, including Antares Capital, Lovett-Miller, Banyan Mezzanine and Ballast Point Ventures.
After deciding in late 2000 not to raise a fifth fund at South Atlantic, Don focused his efforts on The Burton Partnership, which now has over $350 million in assets under management and invests in both private and public companies, and he also serves as a Venture Partner at Ballast Point Ventures.
I have had the privilege of working with Don for over 17 years. During that time, I have admired his pioneering spirit and independent thinking and have witnessed firsthand the incredible work ethic, integrity and dedication that fueled his success. But if I had to put my finger on the primary reason for his investment success, I would say that it was Don’s disciplined adherence to a core set of values and investment criteria that he knew would lead to success if implemented diligently. Easy to say, but very hard to do. His success is well-deserved, and tonight we honor Don for his transformative impact on the Florida venture capital community. That will truly be a lasting and worthy legacy.
It is my pleasure to introduce my mentor and friend and a founding father of the Florida venture capital community – Don Burton.
Though conventionally thought of as an explorer, Columbus might more accurately be described as an enormously influential (and lucky, perhaps even failed) entrepreneur. He pursued an unconventional idea, took a risk, made a huge miscalculation, got lucky, and parlayed all that into wealth from product lines he hadn’t anticipated.
More importantly, his journey fueled the eternal sunshine of the entrepreneur’s mind, writ large. If he were Steve Jobs we’d say he ‘created a platform’ for others to dream and build and change the world.
Here’s how Samuel Eliot Morison put it in his 1943 Pulitzer Prize biography, Admiral of the Ocean Sea: A Life of Christopher Columbus:
At the end of 1492 most men in Western Europe felt exceedingly gloomy about the future. Christian civilization appeared to be shrinking in area and dividing into hostile units as its sphere contracted. For over a century there had been no important advance in natural science and registration in the universities dwindled as the instruction they offered became increasingly jejune and lifeless. Institutions were decaying, well-meaning people were growing cynical or desperate, and many intelligent men, for want of something better to do, were endeavoring to escape the present through studying the pagan past. . . .
Yet, even as the chroniclers of Nuremberg were correcting their proofs from Koberger’s press, a Spanish caravel named Nina scudded before a winter gale into Lisbon with news of a discovery that was to give old Europe another chance. In a few years we find the mental picture completely changed. Strong monarchs are stamping out privy conspiracy and rebellion; the Church, purged and chastened by the Protestant Reformation, puts her house in order; new ideas flare up throughout Italy, France, Germany and the northern nations; faith in God revives and the human spirit is renewed. The change is complete and startling: “A new envisagement of the world has begun, and men are no longer sighing after the imaginary golden age that lay in the distant past, but speculating as to the golden age that might possibly lie in the oncoming future.”
John Greathouse extends the analogy at Forbes, describing Ferdinand and Isabella as early venture capitalists who looked for “surprisingly similar characteristics” as modern investors do. He advises entrepreneurs not to pitch their ideas to venture capitalists:
Ideas are infinite, and in the absence of competent execution, they are worth nothing. Nada. Zip. Zero. Conversely, money in pursuit of outsized returns is plentiful. Thus, if both ideas and money are abundant, what is the scarce constraint in the fundraising equation?
Trust… If you are fortunate to pitch a sophisticated investor in person, assume they already believe in the veracity of your idea, the market and the underlying technological trends. Unless an investor specifically asks you to educate them regarding your space, focus your pitch on why you and your team are uniquely qualified to exploit the opportunity and turn the idea into a lucrative, self-sustaining business…
The second time Christopher Columbus pitched Ferdinand and Isabella (two years after his initial presentation – raising money has always taken patience and persistence), he did not need to convince them that locating a shortcut to the spice routes of India was a good idea. Rather, he had to belie their primary concerns: was he honest, tenacious and competent enough to execute the journey?
While we do retain some interest in hearing about the idea – the details in the pitch reveal important things about the entrepreneur – we agree about the primacy of some of the intangibles in a good long-term partnership. To cite just a few about which we’ve written: integrity, transparency, trustworthiness, enthusiasm and tenacity, self-awareness, and flexible persistence.
In honor of “jOBS” – the upcoming Steve Jobs biopic led by Ashton Kutchner – in which J.K. Simmons will portray legendary venture capitalist Arthur Rock, we want to share a “Golden Oldie” from Mr. Rock himself on strategy, tactics, and people.
From a 1987 piece in Harvard Business Review, Strategy vs. Tactics from a Venture Capitalist:
The problem with those companies (and with the ventures I choose not to take part in) is rarely one of strategy. Good ideas and good products are a dime a dozen. Good execution and good management – in a word, good people – are rare… I will continue to look for the best people, not the largest untapped market or the highest projected returns or the cleverest business strategy. After all, a good idea, unless it’s executed, remains only a good idea. Good managers, on the other hand, can’t lose. If their strategy doesn’t work, they can develop another one. If a competitor comes along, they can turn to something else. Great people make great companies.
This reflects our approach as well: we invest first and foremost in entrepreneurs with experience, vision and integrity. We often back the same entrepreneurs in more than one business, and view honesty and consistency as critical to success over the long term. We also put a premium on transparency, as it’s easier to remember the importance of being honest when everyone involved in a business relationship can observe how decisions are being made. That transparency also helps when, inevitably, things don’t go according to plan. At that point how you react will define the relationship.
While we’re on the subjects of golden oldies and the importance of quality partners, here are a few from our own more recent past:
- When business promotes honesty
- Empirical evidence: power corrupts?
- The Seven Habits of Spectacularly Unsuccessful Executives
- Fail the right way
- It’s easier to rationalize than to be rational
Most research and literature about good governance is developed with public boards in mind, and although the context is a little different than in our business, many of the same lessons do still apply. Since our long term reward depends heavily on whether or not the value of our portfolio company appreciates, we tend to have a more personal ownership mindset – over and above the legal and fiduciary responsibilities – than public company directors.
Here are two interesting reports on good governance which echo our own thoughts on how to ensure a strong board. While processes and best practices may be important, great boards rely on ‘robust social systems’ among its members to ensure that they function properly.
First, from Spencer Stuart’s Point of View 2012. When helping to assemble a board, consider executives who:
…combine integrity with the right mix of knowledge, experience and vision to perform the board’s defined roles with excellence. Beyond even these considerations, qualities such as judgment, engagement and strong communication skills are critical attributes for every director. And, just as it is a component in any high-functioning team, interpersonal chemistry also plays a role in every effective board.
And this, from Bridging Board Gaps, by the Study Group on Corporate Boards – a joint effort by Columbia Business School and the John L. Weinberg Center for corporate Governance at the University of Delaware:
Recent institutional failures, surrounded by general economic turmoil, once again sparked the familiar question: Where were the boards?” … But the new rules (e.g. Dodd-Frank) for public company boards are focused on board process. In addition, boards need a renewed focus on their aspirational purpose and guidance for achieving it… never mistake process for purpose.
That purpose (for public company boards) is stated as “creat(ing) sustainable long-term value for shareholders.” One Study Group member summed up the report’s conclusions this way: “Maybe we should rename directors ‘shareholder representatives’ – then they would pull up to the table in the right mindset.”
Naturally this mindset comes a bit more naturally in our field since we are literally a shareholder representative – alongside the entrepreneur and any fellow investors. (There are also far fewer investors than in a publicly traded company so owners are more meaningfully engaged.)
Owners of private companies get to pick both their investors and their board members. If entrepreneurs pick great partners (broadly defined) to fund their business and make sure both financial incentives and long term goals are aligned, they will have achieved high performance corporate governance that will contribute substantially to their eventual success.
One of the great satisfactions found in our line of work is the close long term relationships we forge with many entrepreneurs, angel investors, and limited partners who have enjoyed their own hard-earned business success. Their prior success creates in them both the tendency and the wherewithal to help support the next generation of high-growth companies that improve all our lives. This recent article in Forbes magazine discusses the critical role these successful business people (and their savings) play in fostering economic growth:
Saving is not the practice of the wealthy stashing money under plump mattresses. Rather, [those] savings are the funds [that allow] businesses access to the capital they need to grow. Firms use these funds to start or expand businesses and to buy machinery and other physical capital…
Because much of the savings that can drive investment and economic growth over time comes from the relatively small fraction of individuals in the top income tax bracket, permitting a tax increase on high-income earners would be a significant disincentive for savings… This decision [to raise taxes on interest, dividends, and capital gains] will affect not only the near-term outlook for the economy but savings and investment decisions for the long-run as well. Consumer spending has its place, but it is not the answer to every economic question. By disparaging investment and in particular the taxpayers who account for most of that investment, Congress is biting the hand that feeds long-run economic growth.
Ziad K. Abdelnour, President & CEO of Blackhawk Partners, blogs that the nation’s successful entrepreneurs deserve gratitude instead of increased taxes:
The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work, or with the certified expertise of advanced degrees. Great wealth usually comes from doing what other people consider insufferably boring.
The treacherous intricacies of building codes or garbage routes or software languages or groceries, the mechanics of butchering sheep and pigs or frying and freezing potatoes, the murky lore of petroleum leases or housing deeds, the ways and means of pushing pizzas or insurance policies or hawking hosiery or pet supplies or scrounging for pennies in fast-food unit sales, all of those tasks are deemed tedious and trivial.
In short, our rich – America’s best entrepreneurs – perform work that most others spurn. (more…)
VC Dispatch has some fun with the old quote about The Golden Rule: he who has the gold makes the rules. But they also ask: who has the gold?
We’ll second that with our own twist on an old quote: “The fate of control is that it always seems too little or too much.” When term sheet negotiations turn to the topic of control, the cliche is that VC firms may ask for too much while entrepreneurs are inclined to offer too little.
Getting this piece right isn’t so much about control as it is about chemistry. If VC-CEO partnerships are like marriages (as is often said), then the issue of control needs to mirror that of a healthy marriage. It’s not about 100% control, or even 51% control – it’s about playing to each others’ strengths and making the concessions and adjustments that a given situation demands. One spouse may be better at particular types of decisions, the other at handling certain types of tasks. At other times an issue will just be more important to one than the other. It’s hopefully a long term relationship, and so over time you each learn when to take your shot and when to pass the ball.
From VC Dispatch’s Who Has The Gold To Make The Rule – VC Or Entrepreneur?:
Twitter Inc. as an example of a start-up that has brought in more business acumen to help it craft a business model. Indeed, Twitter co-founder founder Biz Stone said at the conference that the inclusion of more business-minded people was an essential factor in the acceptance of $135 million from investors this year. Twitter’s investors have been careful not to intervene too much, but with that big investment there is now more pressure for the executives to deliver a working business model.
For Jeff Glass, a managing director with Bain Capital Ventures, the debate over power has defined much of his career as he was a business founder and entrepreneur long before joining Bain. And, in wrestling between needing money and wanting control, he said the steps being taken at first meeting shouldn’t be taken lightly.
“A huge part on both ends is just personal chemistry between management and board; board and CEO; investor and management,” said Glass. “But being on this end now, I would advise to spend more time diligencing the VC or PE firm. Everyone’s cash is green until you have a problem.”
Jeff Glass makes a good point above. Entrepreneurs who are raising growth capital (i.e. bringing on a long term partner) as opposed to selling their businesses (i.e. get the best valuation) should invest a lot of time conducting due diligence on their prospective financial partner. A credible partner will let you (indeed, encourage you) to talk to as many of their previous entrepreneur partners as you want to get a feel for what they are like to work with. Entrepreneurs should ask for references from successful investments, unsuccessful investments and current investments. Ask for the venture firm’s entire list of previous and current investments and randomly call a number of them. Find some independent sources on your own who weren’t provided as references but know the venture firm.
Picking a financial partner is as important a decision as any an entrepreneur will make in building his or her company. Most venture firms will have a good “rap”, but it’s absolutely essential to verify that through due diligence:
Establish a solid foundation for the relationship early: Will you share the same vision? Agree on ground rules?
Once the honeymoon is over, will you collectively put forth the constant effort required to sustain the relationship? How will you resolve conflict? Are communications open and largely free of clashing egos? Does the quality of the arguments make the outcomes better? U2 credits their longevity to a “group ego” that “trumps everything else.“
Fred Wilson of Union Square Ventures, in an outstanding post at his blog, describes one key to successful long term relationships: “shtick tolerance“. You don’t have to accept everything about your partner – outside of integrity/honesty – but you must be able to more or less tune some things out over the long haul. You’re patient with their shtick because they’re patient with yours. It’s hard work.