VCball

Be Like Phil

My favorite golfer at the moment is Phil Mickelson. Fans love him because his style put him into dangerous situations... that he often gets out of. However, after 40 failed attempts to win a major, and a miserable 2003 both personally and professionally, Phil had a midlife crisis. After the cheering died down, he (and some of his fans) realized hadn't won any major tournaments.

So this past year, Phil affirmatively decided that he wanted to win, and he didn't care what other people thought of him on any given shot. In effect, he decided he was going to hit down the middle of the fairway-- not hit it as far as he could if that meant going out of bounds or into the rough-- and have better control of his short game. Phil upgraded his coach staff, and recently switched golf equipment sponsors to get there. He pissed a lot of people off that he was close to. But Phil finally won the Masters this year. I expect more of the same in the years to come.

Entrepreneurs and VCs often do the same thing-- betting the entire company when it's unwarranted and sticking with strategies and human capital resources that don't work. Some entrepreneurs will ask "Aren't VCs and entrepreneurs are supposed to take risks, strategically, on managers, technology development... ?". The question is not about taking risks, it's about taking calculated risks. It's about taking 2:1 odds on a 10 times or 100X expected return, not a 50:1 risk for a 2X expected return. So if you don't play the odds right (like keeping underperformers or not raising money when you can), the risks will grind you down, just like in Vegas. Be like Phil.

P.S. If you are a golfer, you gotta read Mickelson's coach's book, David Pelz's Short Game Bible! But if you are not Against the Gods is well worth the read as well, it's just more boring and won't improve your golf game.

The VC Secret Sauce

Fred Wilson led me to a string of posts left on Brad Feld's post on the issue: "Are VCs with operating experience more successful?". Brad suggested that a combination of operating experience and "pattern matching" is the key. Fred felt that its a "combination of experience, passion, honesty, integrity, leadership, and smarts that makes a great VC."

I think that having "all the above" certainly can't hurt. But my experience has been that it's the VC team that counts heavily, like in any entrepreneurial venture. The individual is important, but the team can negatively impact any individual VC's talent.

Beyond the team functionality, I think the routes to greatness are threefold: 1/ VC brand and deal flow generation, 2/ ability to pick winning combinations of entrepreneurs with outstanding business opportunities, and 3/ ability to enhance individual portfolio company performance. I think to be good in all areas is critical. However, in my analysis, having met hundreds of VCs in the past 12 years, great VCs are world class in only one or two of these areas.

For instance, Draper Fisher Jurvetson's brand is reknown and attracts early stage entrepreneurs from everywhere on the planet. Insight Partners operational assistance is widely recognized and has lead to outsized investor returns in later stage companies. They are good, and even great, in other areas, but every great VC needs to have a core strength (what I like to call "secret sauce") that separates them from the pack.

(Disclosure: the VC firm I manage has close relationships with both of these firms.)