The older I get...the dumber I become. I am becoming less enamored of the volume of deal flow that walks through the door. If one stands in the same place long enough and says "I have money" deal flow will find the money...it will find you...trust me.
So I take deal flow volume as a given. I currently don't measure the ability to put capital to work by means of deal flow volume. I look at it differently. My ability to put capital to work is a function of the volume of people I know who can make things work. In my judgment the right question from prospective investors is: "How many people do you know that can come into early-stage land and make it work?" There are tons of good ideas. There are limited numbers of people who can "make it work."
So if one thinks about this question it seems there is a set of deeper due diligence questions to be asked by prospective fund investors:
- What is your model (Mr. VC fund raiser) for developing and maintaining a system for leadership talent?
- What is the market opportunity now for developing this system in your geography or market vertical?
- How are your going to protect it?
These questions sound remarkably like the questions that we ask prospect companies. Answers to these questions (if put to us by prospective investors) have to be supported by the broader investment thesis as well or they will not hang together.
The other day one of our portfolio companies named World Telemetry Inc was able to recruit and retain John Lee as CEO. I have known John for years. He ran Oracle's Process Group in North America and a similar division for SAP and has been through early-stage land. We previously hired one of his protege's (Trent Derr) to run another portfolio company who seems to be shooting the lights out. Simply put...John makes things work. Another VC firm for whom I have a lot of respect called me and said.."we want in since John is there."
I have never seen a slide in a VC fundraising presentation that recognizes the "system of developing and maintaining leadership talent" as THE business model...and maybe never will. But anyone who has been doing this long enough has become dumb enough to know that this IS the investment. This not only helps investors get the money to work quickly (which is the basic premise of the overall question asked in the title)...but it also makes sure that the money comes back with returns commensurate with the risk taken. Again..this may all sound obvious when put in writing but we've been doing this type of investing a long time and seen tens of VC firm presentions...and they almost never look at the world this way. So with that said.......How's your deal flow?
