Dick Strayer, a Los Gatos, Calif.-based psychologist, has been helping venture firms sort out their emotional and structural kinks for more than two dozen years.
Strayer’s expertise doesn’t come cheap. Businesses pay his consulting firm, Strayer Consulting Group Inc., between $50,000 and $75,000 for what is typically a four-month engagement, in which teams are assessed, strategies are reevaluated, and some are often “transitioned” out the door.
Despite the expense, business is booming these days. Strayer’s working with 20 venture firms currently, and nine of those clients have signed on since September. Strayer recently chatted with PE Week Senior Editor Constance Loizos about his work. The following conversation was edited for clarity.
Q: What type of firms are contacting you?
A:
One kind we’re seeing raised money this year or last year and are feeling pretty good. They’re economizing, but they have capital to spend for the next three years, and they’re looking at how they can strategically take advantage of their situation, from what sectors they should be going after to which individuals at the firm don’t have a history of good performance.
Another type of client is a firm that raised in, say, 2003 through 2005. They are running out of capital to invest and asking, ‘How do we hang on for two years while fund-raising isn’t an option?’
Q: What are you seeing behind closed doors?
A:
I’m involved with several clients in which there’s a lot of finger pointing and heightened interpersonal disputes because of the economic crisis. The pain is inevitably leading to questions about who screwed up.
Q: How do you help?
A: I work with the team and talk not about the history and blame, but what look like the best options available for the investors and LPs. I play peacemaker and keep it away from personal vilification. Some investments are just economic craters, but attaching blame doesn’t help that dialogue at all.
Q: Do you recommend that certain partners leave the firm?
A:
LPs value firm stability. So we try not to recommend more than one cut at a firm, because it suggests instability. But this market contraction isn’t going to be over in six months. If firms are going to reposition themselves in a meaningful way, they have to think and act longer term.
In some cases, maybe that means bringing on new people, or going after a sector that has been ignored by the fund, such as cleantech. To do that, you can’t simply re-brand old players. You have to bring in a new team that can attract the best and brightest entrepreneurs.
It’s harder for those partners who are embedded in lackluster sectors to sustain their role firms, but at least it becomes an easier decision to part ways because it becomes a strategic decision.
Q: Are any firms using the downturn to rush out the old guard?
A:
Well, I wouldn’t say that, but sometimes a successful investor will continue at a firm in a ‘sage’ role. With limited cash, many firms are asking if they can afford the sage, and they’re cutting short the sage’s involvement.
Venture firms are difficult places to leave. There’s prestige and visibility and power attached to being a VC, and they’re mixing with some of the best and brightest people in the world. The pay can’t be matched, either; it’s a good lifestyle. So it’s hard to encourage someone to leave even if their returns peaked in the 1999 or 2000 era and have been downhill since then.
All that said, given the cash crunch, LPs are applying pressure to ensure that all partners are fully investing and that those who aren’t think about what’s best for the firm.
Encouraging people to leave their firms isn’t all I do, by the way.
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