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An interview with CEO turned investor, Nate Lentz, who shares his perspectives on navigating times of crisis, the importance of empathy, considerations for selling to an enterprise and lessons learned from his immersion in the startup
Founders and funders: Nate Lentz, Managing Partner, Osage Venture partners
Nate Lentz joined Osage Venture Partners in 2008, and as managing partner, he oversees investment and portfolio management activities. He currently serves on the board of directors or is a board observer for about 15 companies, including BA-Insight, HiveIO, InstaMed, Noodle Partners, Phone2Action, RackWare, RiskLens, Semantic AI and Sidecar.
Nate’s also actively involved with numerous venture-focused organizations including Philadelphia Alliance for Capital and Technologies (PACT), NJ Technology Council (NJTC) and the Mid-Atlantic Venture Association (MAVA). He serves on the board of directors and executive committee for both PACT and Ben Franklin Technology Partners of Southeastern Pennsylvania. And he still finds time to be a frequent speaker and panelist at venture events.
With so much experience in venture capital and the startup ecosystem, Nate has a lot to share with fellow VCs and entrepreneurs in this full-length interview. I had the pleasure of chatting with Nate about his perspectives on navigating times of crisis, go-to due diligence questions, considerations for selling to an enterprise, and much more. I'm excited to share this fascinating discussion with you today.
Absolutely. One thing I’ve found in having been an investor for the last 10 years, and a CEO in a turnaround situation before that, is the need to put yourself into someone else's shoes when you're thinking about making key decisions or giving advice.
As an investor or board member, you kind of jet set into the company’s world and come in with your own point of view. That point of view is certainly valuable — and it’s one of the reasons the company wants to bring you into the mix — but it's really easy to start reacting to things too quickly. It’s important to be able to step back, think about how the CEO is feeling and understand what situation he/she is trying to navigate. What is the context for why they're bringing this topic up? What are they looking for from this conversation?
These are key elements to consider, and it's really critical to take your own personal interest out of your reaction and focus on the best outcome — not just for yourself but for the person you’re talking to, the company as a whole, employees, customers and other constituents. A lot of this all stems from how I wanted to be treated when I was a CEO.
Selling to an enterprise is a very challenging process, and one that is made harder by the fact that people generally — and enterprise buyers in particular — don't like to say no. In the B2B software world, it all starts with understanding who the buyers are and their roles within the broader organization. Often times, part of the buyer’s role is to be informed and understand what’s happening in the market around technology. If what you're doing is interesting, they will almost certainly take a meeting and have a dialogue with you. Often, they may even be willing to do an unpaid proof of concept (POC). To be able to make it into real buying cycles, you need to be strategic and ask targeted questions. What industries or types of organizations would benefit from the product/service? Who are the people this benefits the most, and what are their problems/needs? How strongly will your offering align with priorities of your buyer? That last piece is critical: if you can’t demonstrate that your product or service aligns with one of the top three priorities for the person you're speaking with, then you really are not relevant from a near-term buying cycle standpoint.
The second piece of advice is to remember that buying for the enterprise can become a team event. You typically have multiple people assigned to a project that is all around identifying and buying an enterprise solution tied to a specific need or goal. It’s important to recognize that you will likely be presenting to multiple people throughout the sales process with varying backgrounds, perspectives and priorities. When you think about the process this team will go through in order to buy your product or a competing one — a good portion of this process occurs even before you have a meeting. In many cases, the buyers will come to a first meeting with a pretty strong foundation of market research done around options that make the most sense for the problem they’re trying to solve or goal they’re looking to achieve. The more you can create content that helps inform a buying team early on in their process — white papers, blog posts, webinars — the warmer that lead or first meeting will be and the more you’ll be viewed as a credible and viable company to do business with.
My third piece of advice is to be realistic with timing expectations. From the time that a buyer says, “Yes, you're selected. We want you,” to getting through the final contract is often a minimum of 90 days. Between that verbal yes and making it official, you have to go through procurements, legal and all sorts of other processes on the enterprise side. It can all just take longer than you think, and many go in with unrealistic expectations.
2008 was a scary period. It felt like the whole world was coming apart, and it feels just as scary if not more so today, given the fact that we face a health crisis, which drives an economic crisis. I think we'll know more as we understand more about the impact and length of shelter-in-place and what the impact is on the long term health of the economy and on businesses, as we go forward. With COVID, this is an economic shock. Like in 2008, buyers in most sectors are freezing decisions for a period of time. But businesses can’t freeze forever – so things will ultimately reopen and go back to more of a normal state. The question we wish we knew the answer to is “how long will this freeze go on?”
In reacting to this crisis, one of the first things I learned was that every company has to look at where they are and think about how they live above the death line. It's a Jim Collins term for always having the reserves to conduct business so that you can make it through a challenging period. You need to have the resources to get through the freezing period and be in a good position to come through to the other side. As investors in 2008, we had to triage the portfolio. We had to think long and hard about who we gave capital to and who we didn’t. Today, we are doing the same thing. We are having tough discussions about cost controls with our CEOs, we are allocating our reserves and communicating our reserve levels to our portfolio.
On a more positive note, thinking as an investor, there are great investing opportunities even in a downturn. In the B2B software space, many companies buy software to improve the top or bottom line. In a difficult period, that can become a much bigger priority, and buyers may actually accelerate the decision-making process because of it. We actually saw companies that had truly differentiated value propositions do pretty well in 2009 and beyond, post that 2008 freezing period.
The level of uncertainty is extremely high right now and making investments (or raising capital for the entrepreneur) is a tricky business because none of us know the length or depth of the downcycle. At Osage Venture Partners, we are finding that pricing investments is a challenge. We have reverted to smaller rounds sizes and earlier stage structures including convertible notes with a cap and a discount to the next round. Hopefully, if structured correctly, this allows investments to continue in an environment of fairness for the entrepreneur and financial responsibility for the investor even during this period of uncertainty.
Yes – starting with capital for capital’s sake. In the past couple of years, startups have been raising these massively large rounds. The scorecard is on “How much money did you raise?” and “What was your valuation?” regardless of what kind of structure is put around that.
Put simply, you can't grow a B2B software company at 500% a year — regardless of how much money you throw at it – and have it be effective. You can't grow a company with 200 employees by 5x and assume that your dollars are getting deployed in the most efficient way. Or that every hiring decision is being made with the same deliberate effort that was made to get the first 200 employees. I think that we're seeing a lot of really high valuations and people loading up on capital, but they're also encouraged to spend that capital quickly. Eventually, I believe we’ll see that cycle come to an end.
Millennials and Gen Z. I think they’re in a position to solve problems that previous generations have created. They're incredibly talented and look at the world in such a different way.
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