VCball

It's the Management Team, Stupid

Is it possible to do a regression analysis on the factors that make for entrepreneurial success?

A couple weeks ago, a business school professor of entrepreneurship Michael Ensley, Ph.D., from the Rensselaer Polytechnic Lally School of Management & Technology presented to a group of TriState Angels on this subject. Dr. Ensley reviewed 6000 ventures over a 14 year period and had done a regression analysis to determine the variables with the greatest ability to predict the success of a venture. Evaluators found that the biggest determinants were:

1. Conflict management – the ability for a team to have a huge fight while in the process of making a decision for the company, yet buy each other a drink after work, congratulating each other on how well they had hashed through the choice they had to make.
2. Cohesion – How much do each of the critical team members feel like they are part of the team and how glad and excited are they to be a part of this team.
3. Self Belief – How sure are the team members that they, as an overall team (not as individuals), have the resources to achieve their goals?
4. Shared Vision – Does the team all have a similar vision of the company?

He concluded in his book that these characteristics were 70% correlated to "success". (Success was defined as the ability to generate positive cash flow, or minimize negative cash flow over the first three years of a company’s life.) In other words: it is not the founding entrepreneur that makes for new venture success, nor the popularity of a certain technology concept, but the chemistry of the management team the founder puts together that makes for a successful venture.

The Biggest Game Publisher You've Never Heard Of

Well make that the biggest online gaming company in China. It's a company called Shanda, a gaming portal backed by Softbank. $72MM in 2003 revenues. In %*#)@# China. That's a lot of Renminbi, the Chinese currency. 1MM peak concurrent users, 500,000 average concurrent users.

Check out Shanda's F-1 filing for a potential $200MM+ IPO led by Goldman.

I have been tracking the gaming space for a while, and it's been growing around 10%/year for the last decade. Online gaming growth has been 35% the last few years. Talk about recession proof... people have more time to play when things are bad, and more money when things are good; it's an international phenomena, and when it comes to computing platforms from PC to PDA to cell platforms, gaming is the number 2 or 3 application driving adoption. My fund even made a seed investment in a NY based company in 2003, Game Trust, along with Topspin, Intel Capital, and CSK (Sega's parent). Game Trust provisions a tournament and transaction management platform for online game publishers and portals and have signed up several major and minor players; clients can effectively double their revenues by adding subscription and other paid tournament features and making those properties less dependent on online advertising. Lot of other interesting operators and infrastructure players out there as well like World Winner , SkillJam, and Butterfly.net.

So let the online games begin!

VCball and Randomness

Why "VCball"?

A few people suggested I read the book, Moneyball by Michael Lewis. I am no baseball nut, but I am now about 3/4 through the book, and I can't seem to put it down. I couldn't believe that for a sport that has been around since the 1830s that statistical anonomolies concerning player value still existed. It appears that a single good statistician could potentially replace 70 experienced scouts' collective intuitive judgement. Geeks who have never donned a baseball jersey or even watched baseball on TV might take over baseball management. One statistician in the book is now the GM of another team. Wow. Talk about information technology releasing value.

I believe there are similar market anomolies that seemed to persist despite actual data to the contrary. What I'd like to pursue in this blog is "new knowledge" in the venture industry, particularly in the software and IT services arena in the New York metro area, which might have general U.S. and worldwide application.

I look forward to finding and sharing random bits of value that maybe we can all make sense of and benefit from.