Risk, Recklessness and Spitzer

12 Mar

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Tragedy is one of those wildly overused words in our often sensationalism-obsessed media. At the risk of appearing a bit pedantic or insensitive, I tend to roll my eyes when an on-the-scene reporter discusses the “tragedy” of a gang shooting, or of an interstate pile-up, or of some other painful event. A busload of students going over a cliff is a horrific accident, to be sure; it is not, however, a tragedy. A tragedy is a literary work in which the protagonist comes to ruin by some innate moral weakness or other flaw.

Governor Spitzer’s personal career immolation is one such tragedy. It is the colossal fall of a fast rising leader of almost Shakespearean, if not biblical, proportions.  Apart from the personal sadness one might feel for the Spitzer family and for others who have hitched a ride on the soon-to-be-ex Governor’s star and may suffer personal and career consequences as a result, it has spurred some thinking for me around the notions of risk, recklessness, hubris and leadership.

Like it or not, we are in the risk business. Calculations are made daily around absorbing some form of risk — a new investment, a key hire, a partnership arrangement, etc. These decisions are so common as to be almost second nature. Andy Rachleff, the renowned former Benchmark Capital partner, once remarked to me: ‘show me a venture capitalist that has not lost money, and I will show you someone out of work.’ Andy’s point, of course, was that if a venture investor has never lost money, he/she is not taking on enough risk. That tolerance for taking on risk, and the judgment that goes behind those wrenching decisions, is what separates great investors from everyone else.

This leads me to behavior, character, and personality. Much has been said about the importance to venture investors of backing (and hiring) great people of solid character and reputations beyond reproach. That’s all well and good, but like most things in life, there is very little black and white out there; it’s mostly varying shades of grey. In the spirit of Andy Rachleff’s maxim, if a venture investor waits for the ‘perfect’ entrepreneur with the ‘perfect’ deal, there will never be very much in that firm’s portfolio. There are no perfect deals, nor perfect entrepreneurs. Every deal has hair on it. It falls to the judgement of the venture capitalist and his or her firm to determine the quality of that deal and that entrepreneur in the context of many other factors that must be considered.  

In my career I have known great entrepreneurs and more than a few bad ones, just as I have worked under strong, capable bosses as well as under one or two that had (ahem) ethical struggles. Fortunately, no one was ever carted away in handcuffs, although one got very close. My point is that no amount of due diligence is going to surface every possible issue or tendency that could emerge in a potential partner, portfolio company CEO, or key hire. Even associates and friends closest to Mr. Spitzer were blindsided by yesterday’s revelations.

What can be learned by all this is that as much as many of us would like to “normalize” what we do and what it means to be in the start-up/venture capital world, this is a strange but wonderful industry populated by exceedingly bright, driven, complicated people. There is a facet of self-selection here that rivals most other industries and, indeed, most other parts of the world. Throw a rock down Sand Hill Road and you will hit seven people with type A personalities, who have six patents under their names, have run and sold five companies, speak four languages, have three top-tier graduate degrees, two percent bodyfat, and run one marathon each weekend. The melting pot, this isn’t.

The kinds of qualities that would make someone capable of getting other very smart people to invest millions into an idea are not that common. And it is those qualities that can just as easily be used for less honorable pursuits. Most great entrepreneurs I have worked with had, let’s say, a healthy self-image. Along with that “healthy self-image” or ego comes a power to persuade and commit other people to a certain vision or point of view that does not simply shut itself off after working hours. Great passion and persuasive powers can be like a drug, and any drug can be misused.

If I have learned anything from the Spitzer episode, it is not to over-react (as I am sure the media will compel many to do) and institute stricter vetting, safeguards, etc, but instead to embrace this kind of “unknowable” risk in people as an unavoidable part of what risk-taking is about when it comes to building new companies. Spectacular people fail spectacularly, in many cases. Building teams of people that can complement (and hence, buffer) strong and powerful personalities is one way to mitigate the flameout factor, but it’s only a start. Unlike more craven people bent on dishonesty, otherwise honorable leaders who are undone by their own personal flaws usually do the greatest damage to themselves in the long run; and for that we should above all else offer them our sympathy and compassion. 

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One Response to “Risk, Recklessness and Spitzer”

  1. Cecilysy March 25, 2008 at 7:37 pm #

    omg.. good work, guy

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