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Neal FAQ: Knowing Your Exits

October 17, 2014 - Author: admin

I’m preparing a new video series coming soon specifically on exits, but in the meantime to get you ready, here is an FAQ I did on knowing when to exit.

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VCs Aren’t Heroes

October 11, 2014 - Author: admin

It’s strange to me to see Venture Capitalists being hailed as heroes or geniuses.  If we’re lucky, we get a knack for spotting talent in others.  We’re like the scouts who work for major league baseball (and yes, I’m going to go for a baseball metaphor because our San Francisco Giants are headed to the NLCS this week and I’m in the mood).  Imagine if baseball scouts were worshipped as the heroes of the World Series wins.  The ones who win baseball games are certainly not the scouts.  It’s not even the players who win, but a combination of synergy between players and coaches.  That’s what makes a company win – a good combination of entrepreneurs and employees. Yes, VCs provide the funds and some guidance.  But the talent lies in the entrepreneurs and employees who make the products work, the customers happy and the markets grow. 

The biggest contribution a VC makes is to make the call on an investment.  A baseball scout makes the call to invest in a player and give him a shot, and a VC makes the call to invest in a company and give them a shot.  Some make it, and some don’t. The decision to make an investment is a somewhat complicated and lengthy process.  We base our decisions on experience and dynamics, but let’s be honest – there’s a certain amount of luck that goes into it as well. 

Once we make the call, it’s the entrepreneurs who drive the company 24/7.  We do what we can to offer counsel along the way and maybe point them to some other people who can help, but day-to-day, it’s the team who makes things happen.

Now, let’s fast-forward to a big market deal or exit for that company.  Everyone’s excited about an IPO or an acquisition and the VCs are praised for their wise investment.  That success is no more the VC’s success than it is a baseball scout’s success when a team wins the World Series.  So much happened between the moment the scout watched a player and a whole team was put together and won enough games to take home the trophy that trying to connect the dots is a silly process.

CEOs are praised in a lucrative deal as well, and they should be.  But not even the CEOs brought that company to where it is by themselves.  Success is made from a team of smart people.  To say that a VC firm provided more than an influx of cash is just wrong.  Sometimes we do well and sometimes not so well at all. 

Next time you see a VC stand up and take credit or be placed on a pedestal for their marvelous contributions to a company, think of the baseball scout taking credit for a World Series win.  The notions are equally improbable.

 

 

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