Think Like a VC

by Moe Rinkunas

The television show Silicon Valley is at times irreverent and occasionally hyperbolic in its depictions of startups and venture capital investors.

Despite this (or perhaps because of the hilarious parody), the show has been a great way to introduce outsiders to a side of the business that can feel very foreign to those that have spent their careers in large corporations.
Why try to understand the world of venture capital investing? Because the mindset of a venture capital investor (VC) can provide some new perspectives no matter what size or stage of your organization.  Here are just a few ways you can think like a VC:

1.    “Bet on the jockey; not the horse.”
This cliche may be overused, but the sentiment is still key to the investment philosophy of most VCs. In the context of a startup, investors care more about the strength of a team than the product or the business model. Does the team bring a diverse skill set that includes both business and technical talents?  Is the CEO a charismatic leader that will inspire early customers to take a chance on an unproven product? Is this the team that will be able to overcome the multiple hurdles faster than others to be the first to market?
Larger organizations could benefit from spending more time thinking about their teams. Are the right teams assigned to the right projects? Are teams diverse enough? Are employees asked to lead teams able to inspire others with their own passions?  Are teams incentivized to move quickly?

2.    “Be wrong more than you are right.”
VCs are comfortable with knowing that they’ll be wrong a majority of the time.  Instead of over-analyzing each opportunity to try to predict success or failure and only investing in the lowest risk propositions, VCs use a portfolio approach to balance risk.  By starting with a number of relatively small bets in a number of startups, VCs are able to watch startups progress over time and continue to invest in those that continue to hit milestones and show promise.

Instead of approving a few large projects, larger organizations would be well served by starting with a larger number of smaller investments. In addition to diversifying risk, this approach helps avoid the dreaded “zombie” project. Most companies have a few of these lurking in the corridors.  A team will continue to work on a “zombie” projects despite extremely strong signal that they will not be successful simply because the project is still being funded.  By breaking up the budget into smaller investments, all projects need to reapply for additional funding, and only those that deliver against measurable metrics survive.

3.    “More is always better.”
As mentioned above, VCs know that they’ll be wrong.  But they don’t have to like it. Most track their “anti-portfolios”: a list of startups that they considered but decided not to invest in for one reason or another.  And that list often includes startups that have gone on to be considerable successes.
As a result, most VCs suffer from fear of missing out on the next big thing.  As such, VCs typically can’t get enough deal flow: investor lingo for a continuous influx of new ideas and opportunities. VCs know that, while they can’t guarantee that they won’t pass on an opportunity that is eventually successful, they certainly can’t invest in it if they don’t see it.

Adopting this approach at a larger organization can be transformative.  For an organization to adopt a portfolio approach, an organization must first evaluate a much larger pool of concepts than are typically considered during a traditional corporate funding process.  Many organizations will host hackathons, hold calls for innovative proposals, and talk to a much broader cross-section of employees to discover new opportunities. As a result, employees feel like their ideas are heard and are more invested in the organization.

These are just a few ways that thinking like a VC can change your approach to innovation within a larger organization. One other tenet that VCs embrace? Learning from failure.  So give some of these ideas a try.  If it doesn’t work perfectly at first, consider what you’ve learned and iterate. Now you are thinking like a VC!

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