Tom Giles at BusinessWeek was kind enough to give me a venue for discussing our venture capital strategy. It combines a blend of best practices from early stage venture capital (like EIRs and seeding companies), and from private equity (like rigorous assessment of financial risk and return).
The key tenets of the approach are to invest in (1) highest growth sectors (which change over time), (2) when the company has arrived at a key inflection point (which might be at any stage), and (3) in one of the top two companies in the category. Having a public side to our business helps us stay realistic about both the financial risks of the deal (probability of exit, capital requirements, key operating metrics, etc.) and it helps enormously in diligence. This is why we have been about to outperform even the top quartile of the VC industry since 2000. The plant-a-seed-and-watch-it-blossom hasn't been effective for most of the industry; some, yes, most, no. There is a time to reap and a time to sow.
So are you changing the blog to StageAgnosticVC? Seriously though, this was a great article. As valuations shift, late, mid, early VCs will all have to compensate, but I agree that great financial due diligence will separate the good from the great performers. I just hope people don't conflate financial due diligence practiced by PE with their financial engineering (i.e. extreme leverage) which has be to blame for so many failed LBOs.
Posted by: mlstotts | April 15, 2009 at 06:52 PM
I like that - perhaps InflectionPointVC would be good. Actually, I am still a dyed-in-the-wool early stage guy. I love Fettucini Alfredo, too, but every now and then you need a green vegetable. A good venture diet needs balance, too.
Posted by: Peter Rip | April 15, 2009 at 08:42 PM