Operations and Strategy
Charis Capital Ventures strives to provide entrepreneurs with the support they
need to create profitable, growing businesses, while providing investors
with outstanding investment returns.
organized this section into the following categories:
Charis Capital Ventures has developed, and will continue to develop strong
relationships with intelligent, hard working, influential people. These relationships provide a strong base for success in the venture capital business. Leads for new investment opportunities, reference checks, key managers, sources of financing, and market predictions come from a wide variety of sources including bankers, accountants, lawyers, salesmen, engineers, the press, other venture capitalists, other entrepreneurs, friends, associates, and relatives. Charis Capital Ventures believes that an active venture capitalist with a strong network of influential people can effectively fund and develop companies with far greater success than a passive investor.
Due Diligence Process
Charis Capital Ventures has an eight-step procedure for due diligence before making an investment decision, and at any stage we may make a decision not to invest.
Read Plan/Assess Team. We request a business plan description
and complete resumes of management from all entrepreneurs. CCV
Partners meet with the best of these entrepreneurs, attempting to
identify key traits that have been associated with entrepreneurial
success in the past, such as high energy, a must-win attitude, intellectual
brilliance, high personal integrity, relevant experience, a strong
work ethic, and the ability to prioritize and focus.
Evaluate Market. In addition to our reliance on our own experience,
Charis Capital Ventures has developed relationships with many market
experts, including CEOs and other key employees of many successful
companies in the healthcare technology arena. Each of these contacts represents
a valuable source of information about his or her own market, and
we call upon these contacts for candid references. As we evaluate
markets, we need to become convinced that a company can attain niche
leadership over time.
Examine Business Model. We examine the models upon which business
plans are built, and have developed a distinct bias toward business
models calling for high gross margins and relatively low capital intensiveness.
Such businesses have higher internally sustainable growth rates than
most and are the best candidates for superior return on equity invested.
Check References. Charis Capital Ventures requires each entrepreneur
to supply a list of references in order that the Partners
may get a better sense of the entrepreneur's past experience, strengths,
weaknesses, and work habits. Charis Capital Ventures makes it a point
to get references outside of this list as well, in order to avoid
only "cherry-picked references." Charis Capital Ventures
believes that these checks are important to develop a more complete
and accurate picture of the team.
Call Potential Customers. Charis Capital Ventures makes it a practice
to call a number of prospective customers to get a sense of how they
might respond to the envisioned product. Early on Charis Capital Ventures
attempts to develop and promote a sense of customer orientation in
all entrepreneurs in whom we invest.
Evaluate Product/Technology. As part of our analysis, we need
to be convinced that the product is unique, and that use of the product
does not require a substantial change in customer behavior. To evaluate
technology, Charis Capital Ventures does not rely on in-house expertise
alone, but contacts appropriate specialists to evaluate the feasibility
of developing the entrepreneur's vision. Generally, Charis Capital Ventures believes that assuming technology risk is part of the job
of the early stage venture capitalist.
Evaluate Risks/Rewards. Charis Capital Ventures evaluates the
pro-forma financials, the likelihood of an exit after a five to seven
year holding period, and the upside and downside prospects for the
company. We insist that, given realistic assumptions, we must be able
to make at least 10 times, and preferably 100 times, our money on
each initial investment.
Decide. When Charis Capital Ventures decides to make an investment,
the Partners draw up a term sheet for negotiation. Valuation,
board seats, requirements for additional investment, vesting schedules,
salaries, and so forth are all discussed, and terms are agreed to.
Generally, Charis Capital Ventures will require a board seat and preferred
stock. While the result of the negotiation must clearly meet our needs,
we believe it is important that the needs of the entrepreneurs are
also met. From the point of the investment onward, we strive to match
our interests with those of the entrepreneurs so that we can work
together as true business partners.
Charis Capital Ventures believes that the judgment of its team is critical to its success. This judgment is based on both the experience of the Partners, and the understanding that the Partners have of the entrepreneurs.
From experience, Charis Capital Ventures has developed biases about: Market Size, People, Uniqueness, Entry Barriers, and Teamwork. The market must be large enough for a company to grow to at least $100 million in value in five years even if it makes a few mistakes along the way. The people must be extremely motivated to do whatever it takes to make a success of the company. They must also be well qualified to take on the challenge. The product must have some differentiating feature that can lead to the creation of a profitable company. The company must be able to defend its position in its market once established. The members of the team must be completely dedicated to building a business and willing to hire the best people they can find. They must show that they work well together, and the proposed investment must align the interests of investors and management.
Discerning the Entrepreneur
It is always difficult for a venture capitalist to gauge the ability of an entrepreneur to implement the vision he or she has described. Charis Capital Ventures ponders over whether: 1) the entrepreneur is adequately motivated, and stable enough to handle a high degree of stress; 2) the venture represents a culmination of what the entrepreneur has long wanted to do; 3) the entrepreneur is a winner, works hard and focuses on the key issues; and 4) entrepreneurs are willing to hire the best people for the task even if it means dilution of their stock or authority. We view our investments as long term commitments to a team and an idea. As such, we think it wise for both of us to get to know each other well, prior to getting together.
To value a company, Charis Capital Ventures believes that expectations of the company's management must be set appropriately, and that all key members of the team must feel good about their position and ownership in the company. Different things drive different people, and we must work to accommodate all key members while creating a superior investment opportunity for Charis Capital Ventures.
In addition to the nuts and bolts of venture capital, Charis Capital Ventures has additional expertise in creating and molding companies so that they improve their chances for success. In many cases, Charis Capital Ventures has created a company around an idea or an exciting market opportunity. In these cases, Charis Capital Ventures often earns a larger equity stake for its role in assembling the original team.
Charis Capital Ventures does not invest as a sleeping partner. Being an active investor, CCV brings the following expertise to the table.
Executive Search and Recruit. In many cases, Charis Capital Ventures
helps recruit additional management needed to complete the management
team that will take the company through the early stages.
Structure and Restructure. In some cases, the original entrepreneurial
team is unbalanced or has an inappropriate distribution of equity.
Charis Capital Ventures works with key members to restructure such
companies before they are funded.
People Development and Guidance. Often the best entrepreneurs
are young and inexperienced. Charis Capital Ventures provides these
entrepreneurs with help, support and direction so that their companies
will achieve healthy growth.
Incentives. Entrepreneurs must know that the company is still
their company, even though investors require substantial equity to
take the risk. They should not feel overpowered at any time, because
typically, they started the company to avoid having someone watching
over them in the first place. Charis Capital Ventures believes that
keeping sight of an entrepreneur's incentives is one of the most important
jobs of the venture capitalist.
Charis Capital Ventures needs to eventually sell the securities it intends to buy for the Partnership. Typically, the investors will exit in one of two ways: 1) through a public offering; or 2) through a merger with another company for liquid shares or cash. A public offering is generally our preference.
After the investment, Charis Capital Ventures becomes a service organization to the company. If we take a board seat, Charis Capital Ventures takes on the role of financial planner, planning for follow-on rounds of capital and introducing the company to later stage venture capitalists, investment bankers, and potential corporate partners. We also help with executive searches for the key management roles not filled before the financing. We also become a confidant to the company president and other team members who need to work out strategy, growth, and personnel problems with an interested "sounding board."