How many times does an entrepreneur with a great idea believe they are the only one suited to run their new venture? Usually, they believe they need to be the CEO. However, even if they are the well suited to lead a venture in the beginning, they are not the one to drive to higher levels beyond development. When this expansion phase occurs, the board usually has the difficult task of letting the entrepreneur/CEO know that it is time for him to take a new role in the company.

Often this communication does not go well, and the end result is that the entrepreneur cannot understand the message and leaves the company.

Here are two case studies I’ve personally witnessed:

1. Typical CEO transition scenario

A three year old company is doing very well. Making lots of profits and growing. The CEO and the board hire a seasoned executive with more big company experience than the entrepreneur/CEO has to help the CEO. The CEO and the new executive bond well, and it looks as if this transition will go well. In fact, the entrepreneur/CEO tells the new executive that he is glad the new executive has come on board, and that he will know when it is time to turn the reins over and step aside. About a year later, the board wants this transition to take place, but instead of knowing that it is time for prudent change, the entrepreneur/CEO starts fighting his board and terminates those executives on staff who agree that it is time for the change. This plays out over several months and by the time the board realizes what has really occurred, the company has lost market share, revenue, profits and cash. The change finally occurs, but it is too late, and the company ends up going out of business, when this did not have to happen if the transition had occurred smoothly.

2. Ultimate irony scenario

Another example is even more interesting. It would be funny if it was not so sad. An experienced venture capitalist decides to change “sides of the table”. An entrepreneur comes to him with a great idea but understands that he does not have the skills or inclination to run a business, only be a developer. The VC decides to run the company for a while until it gets going, at which time he will hire a new CEO, and go back to being a VC. As the company progresses, the business is able to raise in excess of $100 million towards building the company. It becomes clear after the major institutional round, at least to some of the employees and board members, that it is time for an experienced CEO. The VC acting as CEO however now decides that he is the only one that should lead the company and refuses to listen to his fellow VC’s and board members. He fights the board for quite a while, and in the meantime, the company’s spending runs out of control. By the time the board finally removes him from his position, the company is nearly out of cash, and has not completed its milestones. The irony of this is that the VC/CEO had experience on the other side of the table many times and witnessed other entrepreneur/CEOs not wanting to be replaced and fighting with the board. But in this case, he got enamored with the idea of running the company, he took it personally and lost sight of his original mission.

So, we give advice to young entrepreneurs to remind them that having a successful business should be more important than stroking their egos by being the CEO. Most entrepreneurs are best at developing ideas not at managing businesses. We advise that they have to be ready and willing to step aside – many times early on or earlier than they might like – and appreciate that it is nothing personal. It’s just part of the process of building a successful company.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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1. Management. The first one is similar to the old adage regarding real estate. A wise person once said that when buying real estate there are three things to look for – namely, LOCATION, LOCATION, LOCATION. All else falls in line if the location is good. Well when I look at a company to either invest in or help, the first thing I look at is really three things – MANAGEMENT, MANAGEMENT and …. MANAGEMENT.

Without sound management, companies cannot and will not succeed. When looking at management, I like to look for a team of managers who respect each other, who are, or want to be, collaborative in style, and probably most importantly, who are decisive. Not making a decision is worse than making the wrong decision, or worse yet, not making any decision.

Some danger signs to consider when reviewing management is the way the CEO interfaces with the board of directors. A CEO who will not allow open and complete access by board members to the Executive Staff, not just the CEO, is probably insecure, or perhaps hiding things from the board. He may not want to risk having his staff contradict what his message to the board of directors has been. A CEO and team that keep missing deadlines or objectives is another sign that things might be going awry. These missed deadlines and objectives are a clear indication that the staff is probably not communicating, even with each other, on a truthful basis. Their credibility with the board will also suffer. So, bring in a coach or a replacement may be necessary to get the management to work in an effective and cohesive manner.

2. Technology. The second thing to look for is TECHNOLOGY problems. These problems can fall into two different areas. The first, and probably most important would be called technological feasibility. A good example to demonstrate this would be looking back at the computer about 15 to 20 years ago. When COMPAQ first introduced a portable computer, it was heavy, with two floppy disk drives, and a six inch green CRT display. If someone had proposed producing a two pound notebook with a flat panel high resolution color display, a 128 GB solid state drive and a quad core processor, people might have really liked what was being described. However, technology had not advanced far enough, or small enough, to accomplish these lofty specifications. Therefore, an investor who had invested in this dream would have faced technological feasibility issues, and the company probably would have failed.

The second issue surrounding technology is poor execution. If the technology is feasible, but the team has not been able to complete development, then refer to the first point above, because the problem probably resides with management.

3. Marketing. In essence, the question here is can the company generate sales for the new product or service? In most cases, a young company is established and capitalized to fill an unaddressed primary need in an emerging or existing market. Assuming the market is real and the technology works, a failure to generate sales traction is a marketing execution problem. Either the marketing guys spec’d the wrong product to begin with or they failed to successfully market the product once it was available.

So, as you prepare to invest in a new company, or are involved in an existing company, be aware of these three areas and stay vigilant to avoiding the common mistakes made by many others.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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We have dealt with distressed companies through multiple cycles over the past 20+ years and are sure of one thing: even if you never have to liquidate and wind down a company, it is best to understand the issues associated with such a potentiality before they progress too far.  So, with the help of Cooley Godward Kronish, we created a primer for executives and investors regarding legal, strategic, and operational issues facing distressed technology companies. We periodically offer that primer in a seminar/webinar, and our next one is scheduled for May 12. We hope you can join us.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms.  Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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So with all this bad news one would naturally conclude that new world realities in Silicon Valley would severely dampen entrepreneurial activity. If both institutional funding at the front end and liquidity at the back end of the venture cycle are severely curtailed, entrepreneurship would naturally lessen. But ironically the reverse is actually true as local new business activity is as strong as ever. So what’s going on?

1. Angel funding and “friends and family” deal flow is robust—ask anyone affiliated with an angel group; e.g. Sand Hill Angels, Band of Angels, Angel’s Forum, Life Science Angels, Keiretsu. In 2008 there were about 200 Series A deals in Silicon Valley (and about half that many in 2009) so even in a good year the VC start-up activity pales in comparison to the thousands of entrepreneurs and start-ups with non-institutional funding.

2. Start-up seminars, education, training and support services are more plentiful than ever. A record number of slick incubator and start-up resources are now available, from PlugNPlay, Y Combinator, and the San Jose BioCenter to The Stanford Entrepreneurship Network (Stanford has 14 different entrepreneurship organizations). In addition, several competing high profile educational options for smart young entrepreneurs like Founder Institute, are attracting hundreds of first time entrepreneurs who have great ideas but are hungry for experienced advice and counsel to implement them.

3. Access to high profile professional services, e.g. legal, audit, etc., once only affordable by well-heeled VC portfolio companies, are no longer priced in the stratospshere. The area’s top professional services talent like Wilson Sonsini and Price Waterhouse Coopers—either out of necessity or as an appropriate marketing response to current conditions—now have a significant and growing amount of client activity among very early stage companies, many of which do not have, and will not get, VC funding. This phenomenon delivers high quality support to the base of the start-up pyramid at an unprecedented level.

4. Access to quality tools and templates for managing and funding start-ups has improved. Term sheets and other complex start-up documents are available publicly from firms like Fenwick & West and Wilson Sonsini. Their public availability takes the mystery and much of the cost out of an equity funding event, even if it’s money from mom and dad, and makes it as easy as buying a stock on ETRADE.

5. Many are betting on the cycle turning around. Money and exits will likely be easier to come by in the future, and entrepreneurs are nothing if not hopeful of such a turnaround.

6. More entrepreneurs are asking “how do I build a company and make money with very little capital?” than are are asking “how do I get big, fast?” and the effect is 2-fold: because start-ups are looking at opportunities in niche markets where such opportunities typically reside these models are inhgerently of less interest to VCs because they are smaller. Conversely they are of more interest to angels and friends and family because they can succeed faster with less capital, and the need for downstream, dilutive financing is low.

7. Metrics have changed. It’s no longer about building a company based on form (eyeballs, seats, etc.) but on substance (repeat customers, gross margin, profit, capital utilization). Investors are demanding it and entrepreneurs are responding with business ideas and models that focus on sound business metrics.

8. It’s OK to build something modest, as long as it succeeds. Guy Kawasaki is famous for telling entrepreneurs that a venture that may not be fundable by venture capitalists (too small) can still be a great business to be in.

9. Owning and running a successful privately held business is still the best way to create wealth and most are closer to $1M than $100M in size.

So a door may have closed for entrepreneurs that seek venture funding, but a window has opened for entrepreneurs who are nimbly responding to the new day.

J. Weston (Wes) Rose is Senior Vice President of The Brenner Group, one of Silicon Valley’s premier professional services firms, and he now runs the firm’s interim management and restructuring practices. Wes brings more than 20 years of general management and operational experience in venture capital backed technology companies, having served as CEO or COO with five early stage companies.

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A little research on the subject, with much thanks to Wikipedia:

“Texas Hold ‘Em is one of the most popular forms of poker. Hold ‘em exploded in popularity as a spectator sport in the United States and Canada in early 2003, when the World Poker Tour adopted the lipstick cameras to show each poker hand.

A few months later, ESPN’s coverage of the 2003 World Series of Poker featured the unexpected victory of Internet player Chris Moneymaker, an amateur player who gained admission to the tournament by winning a series of online tournaments. Moneymaker’s victory initiated a sudden surge of interest in the World Series, based on the egalitarian idea that anyone—even a rank novice—can become a world champion.

In 2003, there were 839 entrants in the WSOP Main Event, and triple that number in 2004. In the 2005 Main Event, an unprecedented 5,619 entrants vied for a first prize of $7,500,000. This growth continued in 2006, with 8,773 entrants and a first place prize of $12,000,000 (won by Jamie Gold).

Beyond the World Series, other television shows—including the long running World Poker Tour—are credited with increasing the popularity of Texas hold ‘em. In addition to its presence on network and general audience cable television, poker has now become a regular part of sports networks’ programming in the United States. “

It is thought that spectators of Texas Hold’em now rival that of football and stock car racing in the United States, a phenomenal prospect.

Many amateur tournaments have sprung up to allow “friends” to play poker, network with each other, and give proceeds to charity. Could there be a better combination? As an example, The Brenner Group is hosting a charity tournament next month to raise money for The American Red Cross, and two well known valley companies, Bridge Bank and Orrick Herrington & Sutcliffe have agreed to co-sponsor the event.

So, if you were wondering why all of the Poker Tournaments are springing up, you now have all the facts.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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In the post dot-bomb era, VC’s became increasingly risk adverse, and wanted to fund only those ventures with proven entrepreneurs and only ventures that had already been fleshed out to remove much of the technology risk, leaving only a market risk to conquer.

Now, since the Great Recession, VC’s have gotten even further risk adverse, although they claim otherwise. Today, most VC’s are concerned about their Limited Partners interest in the start-up space, because their own liquidity has been diminished, but probably more importantly, they have had negative returns on the VC sector of investing for over ten years! So the VC’s are looking to invest in deals that might have a reasonably short exit in order to increase their returns. Also, by looking at shorter time frames for exits, they are almost sure to invest in later stage ventures which by their nature have taken some, if not all, of the techno logy risk out of the equation.

The rise of the angel

So what does that leave for early stage entrepreneurs? In the late 1980’s and early 1990’s wealthy individuals became a source of capital for early stage deals. These individuals became known as angel investors. In the late 1990’s, and especially in this decade, these individual angel investors organized themselves into groups. By acting in a group, many angels believe they get the collective intelligence of the members of the group, which broadens their own market for possible investments. They also get to spread their investment risk out, by investing smaller amounts individually into more deals collectively. This formula is beginning to replace the traditional venture capital model.

Angel investors have more tolerance for the time it takes to build a successful business, because they don’t have to answer to limited partners, they only have to look in the mirror and satisfy the reflection looking back at them. Angel investors are prepared to invest in early stage companies, and when structured properly, they are able to see a positive return when an exit does – hopefully – occur. Be aware however, that angels are more intelligent now than they used to be. Today, they also look to how much capital the enterprise will require beyond the angel round. If this amount is large, they might want to have some later stage venture capitalists actually look at the deal to judge their future interest in the team and the space.

So, if we look at the funding order available for entrepreneurs today, the first place they should look after their own family and friends, should be to the organized angel investment groups. They still have to deal with more individual investors who make their own decisions, but they are typically dealing with intelligent, qualified investors. So, we can say that these angel groups have now taken the place of the traditional venture capital early stage funding.

When the entrepreneur has fleshed out the technology, and maybe even the market, traditional sources of venture capital may be available to increment the angels’ investment.

Time will tell whether this change in the funding ecosystem is permanent or temporary. But for now, entrepreneurs need to work with angel groups.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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Veteran investor Alan Patrikof is musing in a recent piece in The New York Times about the “good old times” when venture funds were $100 million at most.

So why should VC-Firms be smaller?

1. It takes longer for VCs to reap their profits:

The time from VC-financing to M&A exit has grown substantially. From about 2 years in 2001 to over 7 years in 2007. And the time value of money comes at a high price to VCs: In order to realize a 50% IRR on an individual investment, it would have to yield a 17-fold return after 7 years, versus a 2 ½ -fold return after two years. Not that such returns aren’t possible, but given the substantial investments of large VC firms, those need to be some hefty exits, and:

2. There aren’t that many supersized exits out there:

The average (disclosed) M&A deal size has shrunk to about $50 million in the US in Q1 2009 (with Q2 faring somewhat better) according to Thomson Reuters and NVCA reports. Most M&A deals are not disclosed. Most undisclosed M&A deals are much smaller.

So if venture investors owned 50% of a company at the time of the M&A transaction, the proceeds would yield them $25 million. Which is exactly the average amount of VC investment prior to an M&A exit in Q1 2008. That doesn’t leave much room for any return on investment. And although there are some encouraging signs for technology IPOs, the vast majority of exits are currently in the form of M&A. Even discounting the financial crisis: IPOs these days are a large-bank affair: a company will need to provide sufficient float to attract an active market in its shares; in the order of at least $50 million; at valuations of north of $250 million.

Will any of this change?

We will certainly see more exit activity and better valuations at some point. But a return to the “small IPO” is unlikely. And to build a company with an exit value of $50 – $100 million, it shouldn’t take more than $5 million for the math to make sense – which would call for venture capital firms that can deploy these relatively small amounts of money efficiently.

Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is a Member of the Board of the German American Business Association (GABA).

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From a dozen years of financial consulting, I have seen far too many companies go far too long without paying management attention to finance, with often fatal results. While QuickBooks is a competent system, it is not a substitute for financial management in your firm and poor input to QuickBooks will inevitably result in inaccurate output and sub-optimal decision-making.

What QuickBooks won’t do for you

Accounting can be pretty simple when the company is just starting out. But problems in a business multiply once there are revenues. Every revenue stage firm must have some form of financial management (i.e. Controller or CFO) to avoid serious compliance and operational issues. Yet I find few companies have taken the steps to shore up this important part of their business. For example, invoices can be issued and paid from QuickBooks but I still find companies that are not collecting sales and use tax because they did not know they had to.

Here is a short list of F&A issues that will not be solved solely by a copy of QuickBooks:

• Tax compliance from Federal through local

• Decision support from an accurate financial model

• Internal control routines that can protect against fraud and waste

• Accurate financial reporting to investors and lenders on a GAAP basis

• Preparation of payroll and provision for employee benefits and retirement plans

• Credit extension and collection of accounts receivable

• Effective management of inventories

• Obtaining appropriate business insurance

• Managing a financial or tax audit

• Managing banking and debt relationships

Starting out on the right foot is essential

Often I have been called into a company to fix issues that would have been simple to solve when the company was much smaller, or worse when something fatal has already occurred and major restructuring or business termination is required. Essentially the business decision required is “pay now or suffer serious unintended consequences down the road.”

I urge each entrepreneur to establish a financial plan for his/her business that includes how the financial function will be managed and what procedures and controls will be needed as the firm grows. Outside resources are frequently required to do this and can include auditors, tax providers, insurance agents, payroll and HR services, general and specialized law firms and interim financial managers.

Rick Kadet is Vice President and Senior CFO Management Consultant with The Brenner Group, where he has engaged with over 50 valley firms as Consulting CFO or financial advisor over an eleven year period. Prior experience to The Brenner Group includes CFO and C level operational positions at Versant Corporation; InfoSpan Corporation;, Cadre Technologies, Inc.; and Sarama Industries. Rick began his career with General Electric Company and is a graduate of Arizona State University.

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Seek sources of capital other than venture capital

If you have built significant value, you can pursue different types of capital for sustenance or liquidity. There are exceptions, but for the most part the IPO windows are virtually closed, regardless of how much value you have created.

So, if your historical financial investors (e.g. venture capitalists) have run out of the willingness or ability to continue funding your business while you wait for a great payday, you need to know that there are other ways to fund your business. One such way is to look for a strategic investor. These are typically not traditional financial investors but may be one of your customers or suppliers, or even one of your competitors. This investor might also be a company that is looking to expand through new technology. These parties may see value in funding the company to continue to watch you grow or to assure their supply chains are maintained. These investors might be interested in investing in you to see if they should consider acquiring you at some point in the future. Or, they may start a discussion about an investment and determine that acquiring you in the current market would be advantageous to all parties. Valuations in these circumstances are typically much better than a traditional financial investor, because of the different motivations which they bring to the table. To accomplish this strategy successfully, you should enlist the services of a competent financial advisor, who has managed these sorts of transactions.

Final liquidity option – selling your company or its assets

In our last blog, we spoke about restructuring in the difficult times. However, sometimes restructuring cannot work and forces the board to look at ways to receive anything, even a small amount, representing the value of the assets of the business. In most venture capital backed technology companies, there are primarily two types of assets: fixed assets which you can see and touch: furniture, computers, servers, lab equipment, etc.; and intangible assets which are the ones that probably have the most value. Intangible assets include intellectual property, such as patents or patent applications. Depending on your industry, and the strength of your patent portfolio, many companies might be interested in acquiring these assets. Defensive patents are those which other companies might want to purchase to prevent or block other companies from developing new products which compete with a core business. Offensive patents are those which a company acquires to allow it to pursue a strategic business opportunity faster and with greater defensibility. Lastly, the longer you can maintain the core of the business, such as the development team, the more likely it might be that someone interested in the intellectual property might also be interested in the team that developed it, and might pay a premium to acquire this.

If you cannot keep the team together long enough to see if there would be a buyer for the intellectual property and the team, selling the fixed assets usually requires retaining a financial advisor to conduct the auction of these assets. The value that will be received at auction is typically very low, but can generate a little cash to allow you to conduct a sale of the intangible assets. Retaining a financial advisor with experience in selling the intangible assets can result in better results for the stakeholders, which are the creditors and/or the shareholders.

So while liquidity events come in different sizes and shapes, there is always a way to generate some liquidity for your stakeholders.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

Read more about Silicon Valley news, trends, and commentary in The Brenner Banner

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Our first seminar, “Issues Confronting the Financial Expert” is scheduled for Wednesday, July 22nd from 8:00-9:30am and focuses on key issues and challenges facing financial expert witnesses and litigating attorneys in the development and presentation of financial analysis testimony, with a particular emphasis on valuation. As an approved MCLE provided we are pleased to provide one hour of credit for this session.

Just a few of the topics to be covered …….

• The role of the financial expert witness.

• The court’s expectations and rules of evidence for valuation testimony.

• Daubert challenges.

• The differing definitions of value encountered in litigation.

• The various authorities, professional organizations, and professional standards for valuation.

Look for additional seminars in the months ahead.

Read more about Silicon Valley news, trends, and commentary in The Brenner Banner

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At the PricewaterhouseCoopers Shaking the Money Tree event for the first quarter of 2009, the standard answer to almost every question became 50%.

The amount of new VC money raised compared to a year ago, the number of deals done in the first quarter; the amount of money invested in the first quarter compared to a year ago. These are striking statistics. And while 2008 was actually the fifth best year for dollars invested and dollars raised since the statistics were first being recorded, 2009 looks to be – well 50%. That could make it the worst year in the venture industry since 1996. If we discount the 2009 dollars back to prior years, it might actually become one of the worst years in history.

The exit alternatives for VCs have also further deteriorated. In the first quarter of 2008, there were 5 VC backed IPO’s. In the following three quarters of 2008, only 1 VC backed IPO (3rd quarter). And none in the first quarter of 2009. The number of M&A transactions continued the same type of decline – remember the answer to all questions was 50%. And the average deal value for M&A fell to under $50M in the first quarter, compared to more than $115M in a comparable period last year. The average VC deal consumes approximately $15M to $20M over its life. If the total return is averaging less than $50M, and remember that most deals don’t even get to the M&A stage, it’s hard to imagine an attractive ROI for VCs based on these realities.

New Federal Tax Proposals Would Increase the Pain for VCs

Now, couple all of this with proposed tax laws from Washington that will tax VCs carried interest – their share of any potential gain on investments made by their funds – at ordinary income tax rates instead of capital gain rates, and we have to begin to wonder what will replace VCs, as their model continues to collapse.

Clearly there will always be a place for some type of venture capital investment. But I believe that an organized angel investor community will continue to grow and fill the gaps left by VCs. However, angels also need some sort of exit strategy. A return to a more normalized stock market is needed to make this happen, but angels are used to waiting a little longer than most VCs. In a more normalized stock market, there will more IPO’s, and there will be stronger currency for potential acquirers, as their own stock values increase. In either case, lower valuations mean better deals for the investors and lower terminal value requirements.

So, let’s all hope that someone invents the next “big thing” that everyone must have. Together with this, we should see our stock markets returning to “normal” in 2010 or 2011, and that we will see a new investing model that may combine aspects of the old venture model, the current organized angel model, with something new sprinkled in to make investment capital plentiful again.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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Make no mistake – it is the CEO’s responsibility is to energize, effectively communicate with and manage (not manipulate) your board, and that includes championing and ultimately recruiting any independent board members. Like other effective leadership practices, confidently establishing clear rules of engagement, close relationships and a strategy of open and honest communications will define how you work with your board and what you expect from its members.

The following truisms – gleaned from my work with first time and experienced CEOs backed by top-flight venture firms – will prove helpful in building a strong relationship with your board:

Develop a philosophy around how you will work with your board. Expect the best by viewing your board as a strong potential resource and ally. Be prepared to develop effective and dynamic relationships with board members because they are fundamental to your future success.

Many otherwise smart, effective CEOs regard their board as an unwelcome appendage, battling by taking an alternately patronizing and aggressive stance, which often leads to disastrous results. Others take a tentative approach, inappropriately relying on board members to provide leadership or look to the board for approving pats on the back. Boards are smart; they want you to take the lead. Treat your board with respect born out of self-confidence.

Be as open, honest and transparent as you possibly can. Let the board see the company through your eyes in an unbiased manner, without an attempt to spin the facts or oversell your ideas.

Board members do not want to run your company, but they do want to be confident the person in charge is the right person for the job. If you are that person, prove it by being open, honest and, yes, even vulnerable about your shortcomings and performance mistakes. They should never question whether they are getting the real story or be concerned they are hearing anything but the unvarnished truth. VCs invested in you because they were willing to live in a foxhole with you for the next 5-7 years. They assumed you would be transparent and tell them what they need to know.

As one investor explained to me, “The best CEOs I work with have pessimism of intellect and optimism of will. Their paranoia leads them to scan for and anticipate problems and their optimism gives them the energy and confidence to overcome difficulties.”

Demonstrate you are truly accountable. Mistakes or performance misses are opportunities to prove your maturity and composure. By aggressively standing up to problems, admitting your role, showing you truly understand the issue and have learned from it, you build confidence – both among board members and in your own professional capabilities. Remember, an issue hidden is yours alone, but one shared can unlock the full power of your team to address the problem.

It is your meeting. You drive the board meeting agenda, the priorities and tone of the dialog. A well-received board meeting includes clear expectations for the meeting communicated well in advance with information about attendees, timing and topics to be covered. Start and sustain a fixed format that becomes familiar and effective over time.

Present a consistent performance dashboard at each meeting, which presents an honest representation of business performance against objectives over the prior period. For example, summarize by saying,  “Here are the commitments we made at the last meeting; here’s how we did; and here is what we expect to do before the next board meeting.” Transparent and efficient information sharing engenders confidence and builds trust.

Remember, a short board meeting likely means you are making good progress. Limit meetings to no longer than two to three hours and often 12 slides will be sufficient. Long meetings raise a red flag and tend to drone on because you are ill prepared, uncertain, overly detailed or reporting out on unnecessary functional details. Smart CEOs get to the fundamental insights regarding the state of the business without dwelling on irrelevant data or unnecessary stories.

Board meetings are not the appropriate time to introduce or give politically oriented airtime to your key executives. If they have something important to report, let them do it and then move on to the next agenda item.

While it is your meeting, look at it through the eyes of the board members. Put yourself in their shoes and remember their interest will focus on the business imperatives. They perceive company information through a lens of value creation and investment returns over time.

Use board meetings to seek informed input. Your responsibility is to build a well-informed board that can engage with knowledgeable input. By establishing a forum where capable board members can offer thoughtful insights, you help further build their confidence and demonstrate you are astute enough to mine the substantial capabilities of your board. After all these are smart, capable people who likely have lots of value to add…use them!

Be decisive. The board does not want to run your company nor do they expect to solve your problems. They want their input received with sincere respect and considered valuable. In response to their counsel, express your appreciation by saying, “Thank you for your input. I will let you know what I decide.” Incredible confidence comes from a clear and honest presentation of issues followed by a sincere solicitation for input and authentic appreciation for the value of their recommendations.

Understand the communication styles of your board members. Ask them, “How is it best to communicate with you; in person, email, or by phone? Do you prefer formal or informal correspondence? Do you want lots of detail or just the highlights?” Knowing the appropriate way to connect to your audience provides you with long-term benefits.

Heed the “Breaking News” Rule. NO SURPRISES. Important information should be shared through a constant drumbeat of back and forth communication between meetings. Pick up the phone every two weeks for a brief check-in; repeat your themes, preview potential issues, ask for input. One CEO I work with very effectively spends 30 minutes each two weeks sending a crisp, 3 to 5-minute voicemail to each board member individually; same message with meaningful and personalized information.

Understand the board should have a special relationship with the CFO. Allow and facilitate this relationship, as well any other alliances with key leaders, which are often those handling technical development. Opening access to your team breeds confidence and lubricates communications. If you are afraid of this open communication you had better dig deep to understand why.

At the end of the day, the board’s power emanates from their two fundamental roles: they hire and fire the CEO; and they allocate or withhold capital. The board can also be an effective and powerful ally in support of your success. Following these four engagement rules with board members will help ensure long-term success for you and your company:

• Operationalize a culture of open and honest communication;
• Set proper expectations;
• Know your personal strengths and weaknesses, and;
• Take charge of developing a productive relationship with your board.

Peter W. Dupont is a senior advisor and coach to venture capital backed CEOs and high-potential senior executives of world-class global companies. His extensive background as a CEO and experiences as a board member along with his work with thought leaders in organizational development give him a unique perspective from which to provide substantial value to his clients. His particular focus is on advising first-time CEOs of venture capital backed portfolio companies. He has worked with many venture firms including Kleiner Perkins, Delphi Ventures, Firelake Capital, and Mohr Davidow. Peter is based in San Francisco, is a member of Pacific Leadership Group and an advisor to The Brenner Group regarding CEO coaching.

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An Educated View into the Future
A firm with good planning will reflect a company’s view of the future. Knowable events, costs and opportunities will have been written down and the financial impact estimated in an effective way. In the absence of financial planning, many independent and disconnected activities will not be tracked or assessed leaving the business at risk of missing its key milestones, both financial and business. In my work, I have often encountered companies clearly running out of money (within only a few months) that did not know their true cash position. Also common is the expectation that raised money will last a certain length of time, when in fact careful planning would have shown that it will not.

One typical example from my client base was a software startup that raised $3M with the expectation that it could fund all of its development with the money, and that it could attract advance funds from customers during the development phase. Later, we learned that the client overshot its spending targets; further, the point where customers might provide funding was too far out to be helpful; and no allowance was made for the inevitable delays that occur in product development. Fortunately, we were able to arrange major debt financing and the follow-on Series B round was accelerated to meet the requirement though at a much reduced valuation. Today with money so tight, a firm might not receive a second chance.

Financial Planning Imperatives
Consider these points in your financial planning process:

• “Shake the tree” for all possible elements of your plan that will have a financial impact on the business. Missing key known spending objectives is often a reason for funds running out too soon. “Hip Shooting” is the opposite of Shake the Tree Planning and can be disastrous for firms without the resources to cover for mistakes.
• A well written multiple year spreadsheet containing income statement, balance sheet, cash flow statement and easy-to-update details will be the critical planning platform. This spreadsheet will integrate the many spending and revenue alternatives and provide easy to understand results. As CEO, you must understand how this tool works and the accuracy level of its results based on the quality of the inputs provided.
• Few managers will be able to write themselves a spreadsheet that will be needed for the planning platform. Working with planning professionals will be needed to assure that the results you seek are available to you. Avoid borrowing a spreadsheet the internals of which you may not understand and whose results may not be valid.
• Be sure to consider the less obvious planning elements. For example if you expect revenues, have you taken into account the period of time between invoice and the expected date of customer payment, often 30 to 90 days later? If the firm carries inventory, what turnover rate have you assumed and what will be your vendor’s terms of payment? Did you plan for capital investment needed to launch the company? Each of these elements can have a major impact on short and long term cash balances.
• Once you have the facts needed to make a decision, the model is the way you find out the cash and other impacts of the planning. Let’s say that there are several alternatives to solve a serious product engineering problem; one could be to hire several new engineers, a second might be to hire contractors to accelerate the project, a third might be to outsource the project either domestically or overseas and a fourth might be to do nothing. Using the model, the actual costs of each alternative can be viewed and the impact on cash resources and revenues can be predicted. This may lead quickly to the right alternative with all in management knowing the financial and business consequences.

Whatever your size or stage of evolution invest the time and secure the necessary resources to build an effective financial plan; then routinely use it as a business modeling and planning tool in the day-to-day management of the business. Such a plan need not be expensive or painful but operating without one can be. Do not neglect this very important part of your business until it is too late.

Rick Kadet is Vice President and Senior CFO Management Consultant with The Brenner Group, where he has engaged with over 50 valley firms as Consulting CFO or financial advisor over an eleven year period. Prior experience to The Brenner Group includes CFO and C level operational positions at Versant Corporation; InfoSpan Corporation;, Cadre Technologies, Inc.; and Sarama Industries. Rick began his career with General Electric Company and is a graduate of Arizona State University.

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Limited Partners are under pressure
First and foremost, many long standing, quality VC and PE funds are concerned about whether their Limited Partners (LP’s) will be in a position to fulfill capital calls in the coming months or years. Limited partners in the leading VC funds are dominated by pension funds, university endowment funds or similar trust funds. Typically, these sources of capital have internal guidelines about balancing their portfolio between various investments, such as public securities, debt, government instruments, international, etc. Private equity and venture capital have long been part of their investment mix.

Now these LP’s are facing a several major issues that adversely affect VC’s:

(1) The value of their other investment sectors, such as public securities, has significantly eroded over the past year (the DJIA is down 33% over the last six months). As a result, the absolute amount allocated by LP’s to the VC and PE sector is out of balance and will probably be curtailed in order to balance their portfolios;
(2) Investments in venture capital funds have had returns hovering at or below zero for the past decade. Notwithstanding historically low interest rates, the portfolio managers are probably evaluating whether the VC sector can or will return to higher yields, which are demanded by the higher risk inherent in venture investments; and
(3) The management fees charged by VC funds are typically based on capital committed, not actually invested. So, many of the funds are still drawing large management fees without being able to call capital. This fact might further upset the LP’s who watch their capital being drawn out as fees by VC fund managers, while the new investments have slowed down.

Therefore, many VC’s, including many of the Tier 1 firms, are not making capital calls at this time, because if the calls are not met, they would have to admit that the traditional model is broken. They also are trying not to upset the apple-cart of their ability to draw the management fees, even while returns have been unacceptably low for the LP’s.

Need a robust public market
So, as the reader ponders these issues, probably the biggest question is how can we fix the venture capital model, or what will it be replaced with? The answers are not yet clear.

One obvious possibility is to gain momentum for positive exits for portfolio companies through IPO’s or M&A. But when this can occur is very unclear. The re-emergence of a viable US IPO market is probably at least 8 to 10 quarters away, unless something dramatic shakes our world and stimulates an economic recovery. The first signs of market recovery, which may spark renewed IPO or M&A activities, may include a positive consensus developing among analysts and other market watchers regarding a recovery, and/or strong growth within specific high profile technology segments.

M&A exits will help, but when?
As for M&A, the temperament among corporate development officers is similar to that of a schizophrenic…on the one hand they are salivating at the availability of relatively cheap deals, but on the other their better judgment forces them to horde cash except where a deal is strategically compelling beyond anyone’s doubt. While there will be plenty of interesting potential sellers, the strategic buyers will only cherry pick those deals that are strategically critical or those they can “steal”. Until the economy shows signs of resurgence, whether through profits or market caps increasing (probably both), cash will be horded by typical acquirers like Intel, Cisco, Oracle, and Microsoft.

Recent financial market dynamics have exacerbated the pressure on the traditional venture capital model by imposing further constraints on capital availability and decreased exit options. At a minimum these forces will be with us for the next few years, creating greater stress on all participants in the venture community. Ideally these dynamics will provide the impetus for a new and improved venture capital model, but in any event, it is unlikely to be business as usual.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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On November 14, 2008, Gerald Celente, a renowned US trend forecaster, appeared on Fox Business Network (See the YouTube video of Gerald Celente) and predicted that by 2012 we’d have economic depression, tax rebellions, riots, and more families concerned with buying food than Christmas presents in the United States.

Celente also predicted that in 2009 and beyond food-producing gardens will become common on people’s lawns, as resources generally become more scarce. Other predictions for 2009 and later include a possible revolutionary advance in renewable energy technologies, miracle cures from stem cell research, a shift toward holistic healing practices and a crash of the overpriced college-industrial complex. Celente says to escape the mood of economic depression people will be delighting in entertainment and alcohol.

While I am aligned with many gloomy predictions—including some of what Celente articulates—I can’t buy into the doom scenario with him, particularly for those of us fortunate enough to live and work in the Silicon Valley area. This writer believes that 2009 will surely see a continuing decline, and that it will be at least the end of 2010 before we see any signs of national economic recovery, and this may not come without a major global conflict, of the type we never wanted to see again.

However, Silicon Valley has much going for it and may bounce back sooner and better than the rest of the country. First of all, the drop may not be as precipitous, either in terms of job losses or real estate pain. The last recession was led by technology, and this is a more classic consumer led recession. So, we may be a little more insulated than the last time around.

Also, we have several sectors here that may actually fare quite well during the next several years. Certainly with President Obama’s push for energy independence, green tech may be a real bright spot for us here in Silicon valley. Life sciences also stands ready to continue its climb.

But interestingly, I like Internet opportunities as well. This is because of the wholesale move to smart phones and the accompanying demand for low cost, instant entertainment that will only become more voracious during the difficult economic period ahead of us. Perhaps it represents the ultimate irony: the cause of our last economic meltdown – in 2001 – was the over-hyped Internet companies. Now that sector may actually be part of an economic solution from 2009 onward.

More importantly, I believe our venture capitalists will decide that they need to actively support these sectors, as they have been doing for decades — that is, building companies and jobs for years to come, and all this without 1 cent of TARP bailout money.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

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