How to handle a VC who flies First

Posted: September 4th, 2011 | Author: | Filed under: Startups | 27 Comments »

I’m continuing to enjoy Brad Feld and Jason Mendelson’s outstanding book, “Venture Deals”. On page 106 (of the Kindle edition, at least) they address an issue that’s very minor unless you’re dealing with it: board members who like to live large on the company dime.

VCs will charge all reasonable expenses associated with board meetings to the company they are visiting. This usually isn’t a big deal unless your VC always flies on his private plane and stays at the presidential suite at your local Four Seasons hotel. In the case where you feel your VC is spending excessively and charging everything back to the company, you should feel comfortable confronting the VC. If you aren’t, enlist one of your more frugal board members to help.

This advice is great, but things can sometimes get hairy – you may not have a frugal board member who wants to challenge your large-living board member on the topic.  I had a similar situation at a past company, and while it never occurred to me to ask another board member to help, we came up with our own solution.

Without placing any blame, we wrote up a reasonable travel expense policy for the company.  We then brought it to the BoD and asked them to approve it.  I explained that expenses were getting a little out of hand, and we wanted to reign things in.  I then said the magic bit – “Since this will apply to everyone submitting expenses, including me and any other board members who are traveling, I wanted to have it officially adopted by a board action.”  It was approved without any fuss.

The policy clearly stated that, for example, that the maximum reimbursement was the cost of full-fare coach.  So when a first class ticket came in, we priced how much the coach ticket would have cost, and that was the amount of reimbursement sent.  The board member’s admin asked why the full reimbursement wasn’t included, our comptroller explained, and the whole thing was quietly* solved with no bruised egos.

*some might say passive-aggressively

Postscript: Some folks in the comments have shaken their firsts at VC’s greedy ways.  I should note:

  1. This person was a really great guy, and I’m sure wouldn’t have done this if he knew how much it bugged me (part of why I wanted to spare him the embarrassment of confronting him about it).
  2. It’s possible that he didn’t know about it; he had an admin, and admins will often handle upgrades (complimentary ones). Many see their job as taking care of their boss, not their boss’s portfolio, and may book first (while the VC thinks they just got a comp upgrade).  I’ve known this to happen at least once.
  3. People like to dig on VCs, but the ones I know are almost entirely great folks, which is saying a lot for a job that consists of saying no to 99.9% of the time.

 

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  • http://twitter.com/VineetDevaiah Vineet Devaiah

    Smart move.. 

  • http://freetraffictip.com Tinu

    That’s an excellent Idea. I can be the confrontational type – not for conflict reasons, I just like to people to know where I stand in the interest of saving time. But I’m a bigger fan of friction-less conflict resolution. Nice tactic.

  • David Johnston

    Bet you thought I wouldn’t read this! It’s on now that I know you did this on purpose! !!!!! Lol

  • http://twitter.com/freddealmeida Alfredo de Almeida

    I hadn’t realized this was common practice for board members.   Private Jets!  Excellent.

  • Jwatte

    If your people are your greatest asset, you want them to not lose a day crammed in coach each way, if they could be productive in business.
    Even worse if you span many time zones or continents: jet lag is a terrible performance drain.

  • http://www.danshapiro.com/blog Dan Shapiro

    When you’re in a big company, you ask yourself, “Is flying in business class worth $5,000?”

    When you’re in a startup, you ask yourself, “Given that we only have $500,000, should I exchange 1% of my company’s total assets for an upgrade?”

    I’ve flown plenty of international flights in both economy and business, and I assure you that your laptop continues to function normally in the back of the plane. Earplugs, Ambien, ibuprofen, and an extra battery all add up to a lot less than the business class upgrade.  And while I may be sore, that heals, unlike your account balance.

  • http://www.webjoe.com webjoe

    Love this post.  I fully understand that VC’s are accustomed to a certain lifestyle, but that’s why they make the big bucks.  Upgrade on your own dime, you can certainly afford it. Charging it to the startup is only doing themselves a disservice, it further distances the VC from the entrepreneur who have to make their dollars stretch.  Any entrepreneur who does the same thing would raise eyebrows at a board meeting “you spent how much on meals and entertainment?”, a VC should expect the same.

  • http://kirkwylie.blogspot.com KirkWylie

    Hi, Dan,

    Great post. We’ve faced a similar issue (though not with someone trying to charge us for first class travel). The FirstMark Capital approach is great, and I’ve blogged about it here in response to your article: http://kirkwylie.blogspot.com/2011/09/good-vcs-dont-charge-their-companies.html

  • http://kirkwylie.blogspot.com KirkWylie

    Even better is an iPad. I used to loathe transatlantic Economy in no small part because the seats are now so closely spaced that you can barely open a netbook, much less my 15″ MBP. The iPad has made this far more bearable, as it’s easy to stay entertained and/or productive in the constraints of the Economy flying experience.

    But completely agreed: it’s all about the percentage of the company, as well as the air of frugality. Even at the fundraising level we’ve done, and our current run rate, I’d far rather be paying that money to save another month of burn, or hire an additional employee, than spend 10 hours each way in more comfort.

  • Robert Thuston

    Is it possible for me to find VC board members who aren’t fancy in the first place? But then again, does this decrease the number of VCs I’m willing to work with by 95%?

  • http://www.feld.com bfeld

    This is a totally reasonable approach – I’ve seen it used many times and it’s always effective (and usually goes down exactly as you described).

  • http://www.blogitech.co.uk Chris Maddern

    Great post Dan – much better than an awkward confrontation!

  • Guest

    Here’s another example of why I avoid generalities. Founders should make their own decisions based on their circumstances.  I have brought on board members and advisers who require first class travel and I’ve approved it based on their  anticipated contribution.  Like everything else it’s circumstantial and a matter of specific ROI.

  • Anonymous

    As a communications agency owner, I’m also faced with the same challenge as your board members. Flying coach has its limitations and here are a few:

    1) You stand in line longer at the airport vs. going through the shorter, priority traveler line. That takes away from work time. You can’t be on a conference call or a scheduled call as easily.

    2) You are never sure how long it will take to get off the plan. That impacts calls, travel time to meetings.

    3) You can’t get as much work done on your laptop or tablet if you’re not sitting down somewhere.

    4) Your memberships in airline clubs are used less because you’re on the wrong side of security.

    5) Time is money.

    6) You are likely to meet more interesting and potential business opportunities in First or Business than you will in coach.

    7) First class tickets carry no penalties. That means when the meeting gets cancelled or rescheduled there’s no reticketing fees. For for a flight next week by flying first I saved the $75.00 change fee by paying $35.00 more than a coach ticket. Clients often often balk at the change fees. The question there is, being that the meeting was moved by the client and I’ve now saved them money, who should pay?

    All of the above said, our policy is exactly the same, bill full fare coach or even sometimes the reduced fare and pay the difference out of my company’s pocket. The client is not billed for things like airport lounge access, Internet access, mobile phone charges, etc. Those come out of our G&A. We have found that we never nickel and dime a client, but that some even object to our choice of quality hotels where work gets done, you don’t hear the couple in the next room partying, you’re not subjected to crappy Internet, they offer 24 hour room service, laundry service overnight, etc.  Now the issues get into baggage charges, seat charges, etc.

    Net net–as long as coach is paid for, anything else is on the traveler or their company/fund not the funded.

  • Anonymous

    As a communications agency owner, I’m also faced with the same challenge as your board members. Flying coach has its limitations and here are a few:

    1) You stand in line longer at the airport vs. going through the shorter, priority traveler line. That takes away from work time. You can’t be on a conference call or a scheduled call as easily.

    2) You are never sure how long it will take to get off the plan. That impacts calls, travel time to meetings.

    3) You can’t get as much work done on your laptop or tablet if you’re not sitting down somewhere.

    4) Your memberships in airline clubs are used less because you’re on the wrong side of security.

    5) Time is money.

    6) You are likely to meet more interesting and potential business opportunities in First or Business than you will in coach.

    7) First class tickets carry no penalties. That means when the meeting gets cancelled or rescheduled there’s no reticketing fees. For for a flight next week by flying first I saved the $75.00 change fee by paying $35.00 more than a coach ticket. Clients often often balk at the change fees. The question there is, being that the meeting was moved by the client and I’ve now saved them money, who should pay?

    All of the above said, our policy is exactly the same, bill full fare coach or even sometimes the reduced fare and pay the difference out of my company’s pocket. The client is not billed for things like airport lounge access, Internet access, mobile phone charges, etc. Those come out of our G&A. We have found that we never nickel and dime a client, but that some even object to our choice of quality hotels where work gets done, you don’t hear the couple in the next room partying, you’re not subjected to crappy Internet, they offer 24 hour room service, laundry service overnight, etc.  Now the issues get into baggage charges, seat charges, etc.

    Net net–as long as coach is paid for, anything else is on the traveler or their company/fund not the funded.

  • http://profiles.google.com/caljrel James Knauer

    That all board members are not frugal is near the center of the problem.  That a board would authorize First Class travel for any person — to say nothing of private jets — gets even closer to the problem.  It is stunning the disconnect between corporate thralls and most of the rest of the human population.  We sustain your lifestyle, and you will soon find that the guff is empty.  Then you will consider flying coach an increasingly unattainable luxury.

    What a ridiculous story.  At what point do you have enough gold? Do you even know the word, “enough?”

    You will soon.

  • http://profiles.google.com/caljrel James Knauer

    That all board members are not frugal is near the center of the problem.  That a board would authorize First Class travel for any person — to say nothing of private jets — gets even closer to the problem.  It is stunning the disconnect between corporate thralls and most of the rest of the human population.  We sustain your lifestyle, and you will soon find that the guff is empty.  Then you will consider flying coach an increasingly unattainable luxury.

    What a ridiculous story.  At what point do you have enough gold? Do you even know the word, “enough?”

    You will soon.

  • http://technbiz.blogspot.com paramendra

    No muss, no fuss. 

  • http://www.jonburg.com/ jon b

    I would suggest that the same should be done by brands for agencies, and mostly importantly, enforced. While not too many agency people are flying first, their wining and dining, as well as expensed meals in airports, can get pretty intense.

  • Anonymous

    What airline charges only $35 more for first? I wanna fly that airline. 

  • http://fudge.org Jay Cuthrell

    Please share the method for “we priced how much the coach ticket would have cost” as indicated.

  • http://www.jasonnation.com jasoncalacanis

    I would never pay for a VC board member’s travel…. that’s absurd in my opinion. 

  • http://www.danshapiro.com/blog Dan Shapiro

    You don’t have to – you’ve got enough clout and experience to a) spot the term in the definitive docs and b) push through removing it, if you wanted to make it a point of negotiation.  But I know it’s in Wilson Sonsini’s standard docs and I’m pretty sure its in most others.

    For my second company, I added an explicit clause that stated that such travel was reimbursable only insofar as it complied with company travel policy, to save any headache for the next one.  I didn’t bother to push for its complete removal.

  • http://www.danshapiro.com/blog Dan Shapiro

    To be fair, it’s equally likely that the VC was totally unaware that the ticket was being booked first on the startup’s dime.  Admins handle many VC’s bookings and upgrades, and they try to be helpful to the VC (not the portfolio, usually).  He was a great guy who wouldn’t have been a jerk on purpose; it’s unclear if he was unaware of the action, or unaware that the action was something I considered inappropriate.

  • http://www.danshapiro.com/blog Dan Shapiro

    One tactic I’ve seen used is “use the lowest airfare shown by the flight engine of your choice for an equivalent ticket 7 days from whenever you perform the exercise”.  It’s not perfect due to seasonality and availability, but gives you a reasonable answer most of the time.  It’s also at least somewhat objective: “I checked on day X and it was Y”.  Unless the person is an outright liar, you just accept that as fact and move on.

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