Is venture investing a gut business ? June 30, 2006Posted by rajAT in entrepreneur, startup, technology, vc, venture capital.
Yes, it is.
Paul Kedrosky a venture partner with Ventures West, who also writes a famous blog Infectious Greed, was moderating a VC panel where the same question was being debated – Is venture investing a gut business. And the conclusion is, that it is.
One of the main reasons is that after 4 decades of active investments the VC industry still doesnt have a formula for zeroing down on a winning company.
If you go to any conference where a VC is addressing the crowd. They will all state this statment religiously – We want “A” teams. An “A” team can save a mediocre technology, but a “B” or “C” team could screw up even the best technology. This statement is as hollow as Rakhi Savant kissing claims. In first place how you will conclude that a particular technology is mediocre or killer. In hindsight, one can always make big statments.
When the legendary VC John Doerr came down to Banglore. We asked a question to him when he repeated the same, “A” team – “B” technology statement. The questin was with a twist – Google didn’t have a management team or an “A” team when you guys invested in Google. To hell with management team they didn’t even have a plan how they are going to monetize this whole thing. Then what made you invest. John didnt offer any counter argument – infact he said Google is an outlier so its kind of pointless debating or discussing it. That really helped. Finally, he said we invested because Ram Shriram has invested. Talk about herds.
My 2 cents on it -
For a second if we look a little closer at the ideas or technology. They fall under two categories -
1) Technologies that change the world.
2) Technologies that make things which are already present better, faster or bigger.
The ideas that fall under second category, for them the business models are already proven the entrepreneurs are trying to improve the user experience. These ventures don’t create new markets but may expand existing markets. For example – the travelling industry was always there but by taking it online, booking tickets become so easy.
The first category is the difficult one. When Apple computer started who had thought that the whole PC industry will get so big. But Steve Jobs and Steve Woz thought differently. When Google came up with their search technology noone thought that online searching will be an annual $10 Billion in revenues business. The ideas that fall under this category lead to the creation of a whole new industry.
Hence the difficult part is that there is no factual data that can prove that this new stuff will work. Anyone who is trying to prove this nothing but a fool. For such things one can only go from year to year or better quarter to quarter but you cannt have a 3 year Capex plan in place. It is just not possible. Who has dreamed that iPod will be such a hit, I doubt even Steve Jobs has dreamt that iPod will be such a killer. (iPod led to the creation of microcontent, MP3 players were always there).
The panel concluded finally that picking such trends is an art and not a science. Either you have it in you or not. No business guru or a professional service can help you in taking the decision. Only your gut can show you the way.
In the end, Spreadsheet jockeys are not needed but Dreamers.