I have been living in the venture capital world for what seems like too long. Many successful companies evolve to include investor syndicates consisting of 3, 4, and sometimes 5 different venture groups. Many times the perspective and priorities across the syndicate vary greatly. It can cause huge headaches for management teams simply trying to do their jobs. These management teams sometimes are not exactly sure who is the boss. They are left guessing and a "gap" is created between the company and its investors.
Despite the resulting lunacy, the measurable dysfunction manages to plod along approximating (over time) something resembling rational thinking. I say this in comparison to one particular form of alternative: one where there is a mix of professional investors and non-professional investors.
I have lived in this dynamic believing that non-professionals can come along via the experience gained along side those whom invest for a living. This is nothing less than a near-fatal belief. Many times the absence of experience causes all humans to cling to emotional behavior. Absent a recognizable pattern of data the emotion takes root and chaos begins to surface. One experienced investor can not overcome the emotional activity of the inexperienced lot. I have lived this too many times to know otherwise. It really only takes one person screaming "the sky is falling" to create doubt despite substantial empirical facts to the contrary.
We live in a period currently where "the sky is falling" is very difficult to quash. Here is an example: We have an investment in a small company that has over the past four calendar years grown license revenue 400%, wiped out competition, is winning the sector and is producing significant operating margins (this is a software company). Is the sky falling....? YES. Just ask the non-professional investors. As a professional investor I am absolutely delighted by the progress. We are winning a turf war and dominating a sector. Until the market emerges into the thick of "early majority" this is about as much as one can ask for. Nonetheless, chaos reigns supreme. It is exhausting.
So why the panic? The answer is that the non-professional investors in the deal are not familiar with the attributes of a successful enterprise software endeavor. They don't really know what to look at. There is no recognizable handle upon which the can firmly place their fingers, tighten and derive confidence. Unchecked panic is a California brushfire headed toward the planned community anxious to leap on rooftops and jump from house to house. Don't believe me...just contact the local branch of your go-to venture firm and ask if they have any "similar" experience. It is nuts.
So what is the lesson here: To the professional investor - as capable as we make think reason alone may be, it is not always an adequate translation mechanism to overcome many categories of those who don't do this for a living. To management teams - chose wisely whom you elect to pull into the syndicate....the price of some money can not necessarily be computed in an Excel spreadsheet.
Yes...this may all sound like hubris but this is the exact reason so many firms invest only in control positions so perhaps it is a popular form of hubris.
Despite the resulting lunacy, the measurable dysfunction manages to plod along approximating (over time) something resembling rational thinking. I say this in comparison to one particular form of alternative: one where there is a mix of professional investors and non-professional investors.
I have lived in this dynamic believing that non-professionals can come along via the experience gained along side those whom invest for a living. This is nothing less than a near-fatal belief. Many times the absence of experience causes all humans to cling to emotional behavior. Absent a recognizable pattern of data the emotion takes root and chaos begins to surface. One experienced investor can not overcome the emotional activity of the inexperienced lot. I have lived this too many times to know otherwise. It really only takes one person screaming "the sky is falling" to create doubt despite substantial empirical facts to the contrary.
We live in a period currently where "the sky is falling" is very difficult to quash. Here is an example: We have an investment in a small company that has over the past four calendar years grown license revenue 400%, wiped out competition, is winning the sector and is producing significant operating margins (this is a software company). Is the sky falling....? YES. Just ask the non-professional investors. As a professional investor I am absolutely delighted by the progress. We are winning a turf war and dominating a sector. Until the market emerges into the thick of "early majority" this is about as much as one can ask for. Nonetheless, chaos reigns supreme. It is exhausting.
So why the panic? The answer is that the non-professional investors in the deal are not familiar with the attributes of a successful enterprise software endeavor. They don't really know what to look at. There is no recognizable handle upon which the can firmly place their fingers, tighten and derive confidence. Unchecked panic is a California brushfire headed toward the planned community anxious to leap on rooftops and jump from house to house. Don't believe me...just contact the local branch of your go-to venture firm and ask if they have any "similar" experience. It is nuts.
So what is the lesson here: To the professional investor - as capable as we make think reason alone may be, it is not always an adequate translation mechanism to overcome many categories of those who don't do this for a living. To management teams - chose wisely whom you elect to pull into the syndicate....the price of some money can not necessarily be computed in an Excel spreadsheet.
Yes...this may all sound like hubris but this is the exact reason so many firms invest only in control positions so perhaps it is a popular form of hubris.
