Divergent Newsletter

Portfolio summary:

Not much to report in the Divergent Portfolio.? The pace of financing has slowed. A?few companies have received acceptable proposals and are moving forward.? Others?have been heads down on execution. Others, to be honest, are struggling with what to do.? It's understandable and part of the process.? ?I am on the lookout for new investments and I have recently made a commitment to 2 different agtech companies as I add that vertical as in scope at Divergent. I am VERY excited about both these commits as they include awesome mission driven?talent.?

Entrepreneurs Corner:? Fundraising is tough even though it's a great time to invest,? leaving delusions?of the past behind, and so called "independent" board members

As I mentioned in a post not long ago, paradoxically, most VC firms really just follow the herd. They are paid to think differently but in most cases they overcorrect in both directions in looking for affirmation?from others. They invest too much when things are good and far far too little when things are bad.? ?Many great entrepreneurs struggle with this reality because it is hard to understand why funding isn't available for a quality company that is making progress.?

The handful of Divergent companies that have raised capital or attempted to in the past few quarters, have certainly run across a challenged market.? For those who were able to attract capital, the terms were flat, slightly up or significantly down.? ?Others packed in the process and decided to just execute towards cash flow break even as there was little receptivity.? ?Here is my advice, I would spend your time cultivating relationships versus seeking investments, if you can help it.? ?What I mean is use this opportunity to sift through all the random funds out there and discover who you like.? You can update people without raising money and you can certainly build relationships.? There is carnage in the portfolios so they sometimes like the distraction.? This puts you in a good position when the time is right but you can also determine who really thinks differently.? There aren't many.?

Related to this, part of your approach needs to be putting past delusions behind you.? And don't obsess on valuations up or down.? It doesn't matter what you were valued at before or what you thought the next round should be.? What matters is progress in your company and what the market will bear.? Your progress may be phenomenal but the market has changed.? Thats frustrating.? But its important you also not be delusional or unrealistic.? Remember things always change over time.? This round might be tough, smaller than expected, or lower valuation, but you may be back where you want to be in 2-3 years. Have?some perspective and not make the same mistakes some of your investors will make in imposing irrational expectations.?

Not so Independent board members:? Special advice, and some key pitfalls to avoid

I recently took a number of calls from CEO's about adding independent board members as they scale up.? Often in seed or A round you have a seat or two open that you can assign.? ?I have been on dozens of boards and one truism I have learned is that there is no such thing as an independent board member.? ?So managing outcomes by choosing someone is not realistic.? The reality is independent board members tend to manage their own risk.? So more often than not, they will align with the?popular interest because to be honest,? that's how they avoid risk or confrontation.? ?You can fire them as an entrepreneur but the investors hurt their reputations or ability to get other board seats.? Very few independent board members have real courage.? They also find themselves conflicted more often than you would expect.? Here are some tips to avoid:

1). Do NOT hire "career board members".? There are many of these- look at their linkedin. They are very proud of the 6-7 companies they are on the board of.? Don't hire these people.? They care more about their reputation than your company as board work is their career.

2) Do not hire any board member associated or affiliated with an existing investor UNLESS they put in their own money.? ?If a board member is being paid anything (in any way whatsoever) but a fund or a firm or is on the board of other companies they have etc... they ARE conflicted.? Its not a question of if.? Sometimes people are coy - their kids or spouse are employed by a firm. There always something.? Examine the connections.?

3)? Do not hire people with special agendas.? Maybe they are an "ESG" person or someone who is associated with other special interests.? They will propagate that brand or interest above the interests of the company.? They also play politics quite astutely. You don't need that in your company.

4) Be careful about "central casting".? A lot of investors want independent board members who make them feel safe or that they know. This means central casting and so called "experience".? It also means the country club, which usually means much older, very similar demographic type members.? That isn't a recipe for independent thinking or courage.? ?Someone who is central casting is viewed as competent but ironically they rarely are despite being 60+ in most cases and cut allegedly experienced. A younger board member who can think independently even without experience could be much better and gives some new a chance to be a leader.

5). Don't hire someone who needs money.? ?This is harder to know but if someone is not financially secure, they are more prone to panic.? They will just be a proxy for safety again versus independent thinking and courage.? ?Maybe look at their career accomplishments and try to determine if they have been successful.?

6). Finally don't hire someone you think is an in the bag vote for you.? The whole point is they should be independent.? So you need to be fair on the other side as well.?

This can of worms is harder than you think. I have seen it all on this front- feel free to contact me anytime to chat if you're facing decisions, but there is no perfect person,?so its?always a judgement call.? Your expectations should be clear.? Avoid some of these pitfalls and you have a better chance at success.?

Parents Corner:? Family Vacation (neither relaxing nor a?vacation)

Taking the kids away can be a stressful experience in any instance.? I prefer to call it a trip versus a vacation because there is nothing relaxing about it.? ?We recently went to new york for 3 days and this time it went well.? ?There are some tips that really help.? One big one I have is that you should keep as much of the normal routine as possible.? For example, as much as I want my kids to experience new york?and prefer?all it has to offer, they want their 30 minutes or 1 hour of screen time.? So we made that same deal where if they participate and behave they can get it.? Similarly, if they don't, there are consequences.? The other thing I have learned is to plan around long lines.? i.e. we went on weekdays so lines or waits would be less.? I do want my kids to learn patience but on this particular trip I want to make my life a little easier.? My kids are getting older and I do want to travel with them but I need my own space and sanity as well.? ?So a few pre-planned thoughts can really help.?

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