At Least Someone Is Putting Their Job On The Line

Fifteen years ago this month, I made the first investment of my venture capital career.  While I had previously done some diligence on projects for other partners at the firm, this investment was the first company I felt true responsibility for within the firm.  The company was called The Vincam Group, and it was founded by two fabulous, self made, entrepreneurs who had immigrated to the US from Cuba, Carlos Saladrigas and Jose Sanchez.  We invested $6 million in the company, which was at the time, interestingly, the largest initial investment the firm had ever made.  The company was what we would today called a technology enabled services firm that outsourced the entire HR function for small to medium sized businesses.  The company was a pioneer in the field and they referred to themselves as a Professional Employer Organization, a term that still is used in the market.  

Given the size of the investment and our relative lack of experience in the HR field, the decision to invest in the company was relatively controversial within the partnership.  As a result, we turned the business inside out from a diligence perspective including using outside consultants to pore through the financial statements given the company had relatively little by way of professionally prepared audits.  My guess is that in the post Canopy Financial world, this approach may become more common again and we were fortunate to have a real pro, Bill Teuber (who has since gone on to become the CFO and Vice Chairman of EMC) lead this effort for us.  As the investment decision came to a head within the partnership, one of my partners had a classic comment in which he dryly observed, "fortunately at least one of us around this table is putting his job on the line with this decision".  Given I was working on the project with one of the most senior partners of the firm and I was the only non-partner around the table, I knew who he was referring to!  Luckily for me, and my nascent venture career, the company went on to go public in 1996 and subsequently be acquired by ADP, where today it comprises the core of ADP's Total Source division.

The venture industry has changed tremendously since 1994 and this investment.  In 1994, the industry raised total capital of approximately $8.5 billion and there were less than 4,000 principals in the industry, versus approximately 8000 today.  As previously discussed, these numbers may not be far off where the industry is heading today. That said, what is more striking to me is how, at the core, how little has changed.

Our investment in Vincam had all the characteristics we continue to look for today: Talented and passionate entrepreneurs who have developed a compelling and disruptive value proposition targeting a large, untapped, market opportunity.  Further, from a partnership decision making process, there remains the constant tension between the excitement of transforming markets and the potential upside and the fear of all that can go wrong.  So we approach the business in a remarkably similar way: surround the decision with smart, skeptical, experienced partners who push the thinking on all the critical issues and risks and ensure no rock is left unturned.  Finally, and most importantly, I still feel as if I put my job on the line with every decision we make!

Comments

[Bilal Zuberi]

Awesome stuff. We need more VCs who can empathize with the entrepreneurs for what they are putting on line to embark on the entrepreneurial journey. While some VCs consider investing a win-some-lose-some option play, an entrepreneur puts his career at stake on a single company. All VCs think they are making a sound decision....but some go that extra distance to truly partner in helping build a great, lasting business.

[John Franson]

Nice insight on your perspective. So often it is forgotten that the fundamentals persevere.

[Randy Domolky]

I find it strange when people say "don't take it personally." Don't they want me to strive toward a positive outcome with some ownership of the actual outcome - either good or bad? You are talking about "principal-based investing." You are acting as if it is 100% your money on the line and your job and your reputation and your self-worth. Warren Buffett does the same thing and it is working out fairly well for him! Good job! Keep it up...