21 Feb Venture Capital Is Mostly About People
It is critically important for anybody putting money to work in the venture capital space to think of the process as being mostly about investing in people, rather than exclusively in ideas, products or services.
To be sure, disruptive and innovative products and services are de rigeur for success in VC. We’ve highlighted many examples in previous pieces, where firms in the care economy and in the sustainability sector (for instance) have offered new approaches to existing societal challenges. Without great ideas and different ways of thinking, it’s virtually impossible to be successful.
It is, however, crucial to remember that all of these game-changing notions and concepts are the product of the people who devise them. Without the inspirational people that make up the VC space, the products and services would never materialise.
That may seem an obvious point, but it is one worth making, especially if you think of this relative to public market investments. When you invest in an established company such as Apple, you are investing in their existing and future products, together with the processes and organisation which brings them to market. The company has a proven track record, and as a result investors have been comfortable buying Apple’s stock.
In early-stage VC, however, the founders are a much more important input in the process, as it is their ideas and ability to execute that will be integral in their success, rather than their established reputation in making iPhones and other well-known products. For every great idea at the beginning of a company’s development, the people who implement those products or services are arguably more important than the original idea itself.
Michael A. Eisenberg recently noted that both founders and venture capitalists should be looking at investments as relationship-building exercises, not merely as transactions. This is especially true in the world of VC, where the best-in-class are cutting-edge people with new and disruptive ideas. If the current era in markets can be described as one dominated by transactional investing, building relationships can be an innovative way to unearth unpolished gems.
People are also a critical element once an early-stage company gets up-and-running. Our friends at TMV recently wrote about the importance of board composition and the value of observers in the effective and efficient running of start-ups. Again, great ideas and products or services are a necessary prerequisite for success, but without the right people at every stage of the process, that success is not guaranteed.
Investing in the right people is the mission-critical component for success in venture capital. The original thinkers who devise new products or services that will change the way we live are the obvious starting point. Additionally, though, it also includes having the right people to implement and execute the ideas of the founders. And, in VC specifically, which can be a daunting investment space for many people, it is important to find trusted partners to help you navigate the space, as we have argued before. In venture capital, perhaps more than in any other asset class, engaging with and investing in the people is the most important consideration.
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