Month: July 2015

I’ve never been much of a gambler. Perhaps it stems from my last 16 years spent as a banker, or my extreme disdain for losing hard earned money. So perhaps it comes as a surprise to hear that I’m a huge fan of casino games, specifically the game of blackjack. For me, the game represents the perfect combination of probability computation, intuition, and good old-fashioned luck. Winning in blackjack is fairly straightforward. A player wins when he or she has a combination of cards that bests only what the dealer has. Predictably as with every casino game, the odds are tilted in favor of the house. Depending on table terms (# of decks, payout of blackjack, etc.) the probability of a positive outcome, actually winning money, for any given player is anywhere between 44% and 48%.   This value presumes that the player is playing “by the book” and understands what action is statistically favorable under all scenarios. Most people have either read the book “Bringing Down the House”, or have seen “21”, the movie adaptation of the book. As the story goes, a group of students from MIT University travels to Vegas, and utilizes the classic Hi-Lo technique of card counting to gain an advantage over the house. Card counting, if executed properly (much harder said than done), enables a player to improve odds of winning to slightly over 50%, a slight advantage over the house. But unlike what the movie might have led many to believe, it doesn’t guarantee success. So what do blackjack and venture capital have to do with one another? Actually quite a bit as both traverse a similar mix of skill and luck. In blackjack, accomplished players acknowledge that external and highly variable factors play a huge role in determining success; from the cards that are ultimately dealt to the behavior of other players at the table. As such, energy is focused on actions that optimize the probability of winning, whether it be memorizing scenario probabilities and/or leveraging advanced techniques like card counting to tilt odds. Over the past couple of years, capital flowing into venture capital funds is creeping toward historical highs (tossing out the edge case years of 99-00). If history serves as an effective prognosticator, fewer than 10% of these funds will generate returns that Limited Partners will deem to be successful. So why invest? The ones that are successful tend to be really, really successful. Resembling the game of blackjack, there are multiple external factors that slide the success probability needle in venture either to the right or left. Market cycles, timing of deployment, and basic serendipity all have varying degrees of positive or negative...

Stating the obvious, building and managing a strong network is a critical component of success in business.  And within the world of Venture Capital, network signal strength frequently serves as the determining factor between moderate and resounding success. Unfortunately, while most people are proficient at building a network, too many miss the mark of what it means to manage an effective network. It’s not hard to understand why.  After all, offline (conferences) and online (LinkedIn) networking opportunities create new connections daily, making it tougher to determine where to spend the most valuable asset we have – time. Candidly speaking, it’s something I’ve always struggled with.  So, earlier this year I decided to do an exercise where I scoured through my entire LinkedIn connection network (nearly 2000) of them. While exhausting, it helped me surface the following observations: 1/ 1% of my connections brought me significant personal or professional value. 2/ 10% of my connections brought me any degree of personal or professional value. Perhaps I was overly myopic in my assessment, but I did force myself to think within some rather strict parameters of what value meant. From there, I checked my calendar and looked at all my appointments in the prior month.  What I found was startling.  Roughly 70% of the meetings I took were with unknowns (new connections) or with individuals that fell in the 90% bucket! Yes, only 30% of my time was being spent with the partners that were meaningful to me. I also determined that the concept of reciprocity is an important one – Most of the value I drove was to the same small group of individuals within my network. Without going into laborious depth, I’ve found that 2 things are required to have a meaningful relationship: 1/ Professional and personal compatibility – Professionally, this is easy to describe.  It’s someone that has a role that’s synergistic to your and there is clear definition as to how both parties can benefit from knowing one another.  Personally, it’s a bit trickier.  For me, the airport bar example still serves as the best litmus test. If forced to be stuck at an airport bar together for several hours, would both people genuinely enjoy each other’s company? This is usually only the case when you have two people that share similar lifestyles, personalities, and interests. 2/ Capacity and motivation to be reciprocal – Simply put, both individuals have the ability and desire to help each other (sidebar, read the book Give and Take by Adam Grant).  I’ve often met people that have the capacity to help me greatly, but with no fault to them, lack the motivation to do so. Too often, people...