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What Makes RPM Different, or The Real Question to Ask a VC

I’m frequently asked by entrepreneurs and investors, what makes RPM different?  Every Venture Capitalist has some canned answer to this question that generally falls into one of these five categories (from here on “The Five Things”):

  • Our Brand, look at who we are and what we’ve invested in
  • Our Relationships, look at who we know and what doors we can open for your company
  • Our Work Ethic, we work as hard as you do for you (or, we’re entrepreneurs too)
  • Our Capital, our fund has the money it will take and with more in reserve
  • Our Experience, we have an outstanding track record of success

Brand, Relationships, Work Ethic, Capital, and Experience.   If you were to diligence us on any of the Five Things I think you’d walk away pleased.  Covering the Five Things myself, though, I believe would be puffery.  I’m fond of saying that when someone is investigating us, “the story is not about us, it is about our companies.”  I think the entrepreneurs we work with are better at telling our story than we are. They can give insight into each of the partners and their experience with us with respect to the Five Things.

So how different are firms based on the Five Things?  If you look at even just a small set of firms, on the surface it would be pretty difficult to really differentiate if you are getting the answer from the VCs themselves. The answers are canned, and start to all sound the same.  So what can make a firm different?  It’s the partners.  Every entrepreneur has heard this, and we always tell it to our CEOs when they are going to raise capital, “it is not the firm.  It is the partner.” So if we all agree that this makes sense (and I hope we do), and if understanding the Five Things can be determined through diligence, then what is it that makes the firm and its partners different?

I think that is determined by asking the “Real Question.”   The Real Question is tougher to diligence and the thoughtfulness of the response alone tells you a lot about what makes the firm and its partners different.  It can be asked in a lot of different ways, but it comes down to this:  core principles.  It might be something like:  What are your core values and principles that make you who you are?  Do you live by a code?  What do you stand for?

Whether it is investing in a fund or raising capital from a fund, the reality is you are about to get married in some ways, and don’t you really want to know what makes that person tick?  If you have your back up against the wall for example, a VCs contacts, experience, capital, etc.. are the weapons they have at their disposal.   However, what you really want to know is whether that person will be right there with you and in what form.  That you can only find out by asking the Real Question and getting a sense of who that person is before you ever get to that point.

If someone can answer this, and more importantly if their behavior is consistent with their answer, it will give you far better insight into who you might actually be working with and what they would be like as a long-term partner versus just hearing and answer to one of The Five Things.   Over the next several posts I’m going to dig into this in more depth.  I hope that this discussion causes a few things:  1) For everyone to ask themselves the Real Question.  2) For entrepreneurs raising money to ask the Real Question of investors.  3) To give entrepreneurs and investors talking to RPM our answer to the Real Question.

I ask myself, why do I need to answer a question about why RPM is different?  Why do I need to answer to the “Real Question?”  More importantly, why do I need to answer it publicly?  Frankly, who asked?  Who cares? While I can justify this by saying, “Entrepreneurs ask, or should ask,” a truer answer is as a firm we need to answer it for ourselves.  Asking the question of ourselves forces us to do some self-reflection, and keeps us honest with ourselves about how we are moving through both work and life.

So what makes RPM different?   Until now we always focused externally on discussing how we were different based on the The Five Things (from prior post: Brand, Relationships, Work Ethic, Capital, and Experience), because everyone else did.  In fact, I think our answers based on The Five Things, are really good answers.  Let me give you some examples (and this list could have been a lot longer):

  • “We’re entrepreneurs; we won’t invest in a company unless we’d work there ourselves”
  • “If we can’t add value, it means we shouldn’t invest.”
  • “We don’t choose entrepreneurs.  Entrepreneurs choose us, and we don’t forget that.”
  • “The top priority in our firm is the CEOs of our portfolio companies.  We’ll drop everything for them, that is the responsibility that we take on when we invest.”
  • “Early Stage DNA is at the core of our RPM’s culture.   We love working with entrepreneurs who are just starting up, because they have the same DNA.”
  • “We grew up in this industry in Silicon Valley, and our networks there may even be stronger than even here in the Great Lakes.”
  • “We don’t compete with the big firms, we are partners to them.  That is why so many of our deals get follow on financing from brand names,  and why so many of our deals come to us from those firms.”

I have no doubt that every single one of the CEOs of our portfolio companies would attest to these.  The reason I have no doubt, is the answers are authentic, and rules we truly live by.  Our DNA hasn’t changed, we are early stage entrepreneurs.  Tony and I did start our own companies prior to becoming VCs.  RPM itself is a startup, just a different kind of startup.  Everyone in our firm has that DNA and always will.  Even our analyst (@melemmer) started her own business at 15 (Iorio’s Italian Ice).

However, these answers still don’t answer the “Real Question” about what our core values are.  To answer this, as I described in the prior post, it isn’t a question about the firm but about the partners.  One of the things I think all entrepreneurs should do is answer this question before starting their company.  It aligns the team and sets the tone for the culture from the beginning.  Practicing what I preach, my partner Tony Grover and I spent a long time discussing this as we were starting RPM.  While sitting next to the Huron River in Nicholas Arboretum (which feeds into Lake Erie) over 10 years ago we discovered the answer.  I say discovered, because it always existed vs. being invented.  We just never tried to answer it together.  The answer was one we felt we could build our lives and our firm around over the next 25 years, and have stayed true to it since.  It is at the core of our actions and is a true reflection of who we are as a firm.  The answer is based on four pillars:

  1. A Duty to Our Family
  2. A Duty to Our Business
  3. A Duty to Our Community
  4. A Civic Duty

I’ll tackle each of these individually over time, and in doing so will try to balance our “philosophy” with real actions that reflect this.  For now though, I want to conclude by making an observation that is the heart of all four pillars. There is one universal term in each of these, Duty.  Why Duty?  I think thedefinition from Wikipedia covers it nicely.

“Duty is a term that conveys a sense of moral commitment to someone or something. The moral commitment is the sort that results in action and it is not a matter of passive feeling or mere recognition. When someone recognizes a duty, that person commits himself/herself to the cause involved without considering the self-interested courses of actions that may have been relevant previously. This is not to suggest that living a life of duty precludes one of the best sorts of lives but duty does involve some sacrifice of immediate self-interest.”

– Marc

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