If Oracle builds databases and Apple makes iPhones, then what does venture capital do? When I first started in venture I thought our equivalent was deploying capital, sourcing great companies, or making money for our LPs. And venture is all of those things. But the distillation of those actions roots back to the point at which the partnership comes together to make a decision. Ultimately, it comes to a yes or a no.
LPs invest into a pool of undeployed capital, the investments undetermined, knowing only the makeup of the team, their past outcomes (based on historical decisions), and a determination whether the trend will continue. Notably, venture firms are structured as limited partnerships within LLCs, with the emphasis on partnership.
People ask me — in what ways are venture firms different? At a glance, they all look the same: blind pools of varying sizes, investing in “tech” companies and differentiated mainly by fund size, investment stage, or sector focus. But from the inside, it is less about the categories and more about the people and the relationships between and among them. How teams are structured, how decisions are constructed, how votes are counted (or not, in many firms), how teams mobilize, how ideas are communicated, how well the principals get on: this is what makes venture firms different.
As the venture capital market has matured in age and sophistication, venture firms are competing doggedly for the very best assets. This reality has magnified the importance of efficient, effective decision-making within a firm, as investors and investment teams are being asked to make quicker decisions on larger dollar values. Making informed but swift decisions is a significant competitive advantage that only the most functional, decision-oriented firms can do.
So what do venture firms build or make? Decisions. To analogize Michael Pollan’s famous dictum “Eat food. Not too much. Mostly plants.,” we can reduce venture to: “Make decisions. Not too many. Mostly great.”
Originally published on LinkedIn.com