The art of being a VC director.

• Author: FEINSTEIN, MICHAEL

Post-irrational exuberance, the need for 'hands-on' guidance has never been greater.

FOR EARLY-STAGE companies today, the competitive environment is changing rapidly. The pressure to achieve profitability -- and to achieve it quickly -- is mounting. Capital sources are contracting. And investors who were previously enamored with an ever-burgeoning slate of new technology offerings have grown decidedly more skeptical. As a consequence of these new market forces, startups require more than ever before the hands-on mentoring of active, seasoned directors.

At Atlas Venture, this has been our guiding philosophy and operational approach for more than 20 years. In almost all cases, our principals take a board seat when we commit the firm's capital to a portfolio company. Most of us -- there are 19 investing principals in all -- have had senior operating experience in our fields of expertise before joining the firm. And many of us have started, run, and sold start-up companies ourselves. So our background informs and prepares us to take a hands-on approach as directors.

To advise a portfolio company effectively -- particularly in such turbulent times -- a director must be prepared to take the initiative and assume a leadership role in key areas ranging from strategy setting and team building to market creation and financial management. A highly focused attention to this kind of granular-level detail, not to mention the ability to actively leverage diverse networks of customers, contacts, and cutting-edge expertise, has become imperative today for venture capital directors helping their portfolio companies fight it out in the trenches.

From ground zero

Entering a new market in the current economic environment requires far more preparation and precision than was necessary just 18 months ago. But because most early-stage companies lack inhouse marketing expertise, among other resources, a VC director must take the lead in helping shape a company's competitive strategy and then define its positioning.

In the summer of 1999, for example, just months before the dot-coin demise, my partners and I were approached by four postgraduate students from M.I.T. who had developed a compelling new software technology. Although the appropriate market sector for their product was still unclear, we thought their concept was inherently quite viable and agreed to provide them with a small round of funding.

As the company's first board member, I worked intensively with...