The Fantasy Of Assembling ‘Fantasy VC Teams’

11 Nov

Many who came of age after 1980 might well remember the notion of the rock supergroup. [Asia anyone?] The idea sounded great: Why not assemble a band composed of all-star musicians from other groups? No filler, no mediocre musicians gumming up the works; just great players riffing off each other and making historic music for the ages.

However, like so many things concocted by committee—record company A&R departments being behind many of these supergroups—the reality rarely lived up to the hype. Despite some early commercial success these ventures rarely translated into significant musical contributions to the oeuvre. Honestly, can anyone name one song from a Bad English or Damn Yankees release? Me neither. Asia, for its part, is now a punch line in the 2004 comedy The 40-Year-Old Virgin.

In even the successful cases, most supergroups barely squeaked out one album and a follow-up tour before collapsing in a conflagration of clashing egos and battles over control, songwriting credits and, of course, over money. Rarely has a supergroup produced a follow-up record of any note, or at all. As a music fan myself, while I often wondered what a second Blind Faith or Temple of the Dog release might have sounded like I am comforted by the fact that, in most cases, the musicians behind such collaborations typically returned to their mother ships and produced other great works that can be enjoyed to this day.

I revisit this nostalgic musical past in part to both draw a parallel and to illustrate some of the silliness behind the notion of assembling fantasy VC teams. A recent blog post I came across posited the idea of assembling a “dream team” VC fund by identifying best-in-class investors and analyzing the implied return that a synthetic fund composed of those investors would generate. As a casual intellectual exercise, this analysis is fairly innocuous and hardly worth the time to mount a rebuttal. However, I sense there is something more harmful and even a bit disturbing in the notion—even the ephemeral notion—that venture returns and venture funds themselves can be cobbled together by component parts and put out on the road like some sort of inert machine designed to generate returns.

In a sense, I can appreciate the blogger’s fascination with the hypothetical exercise. While the venture industry has long been accused of being opaque, data is now increasingly available on venture industry returns and on fund performance and individual investor performance within those funds. Additionally, there are endless analytical tools at one’s disposal to run all manner of what-if and back-test scenarios. It’s only natural that one would be interested in running a few simulations. In short, I get it.

The problem I have with this kind of examination, however, is that it completely dismisses and discredits the role and value of the venture firm itself and that of what it takes organizationally to support a great investor to do his or her best work. In other words, it takes no account of the value of the partnership, the venture organization itself, nor how teamwork plays a role in generating great and consistent industry-leading returns.

The venture industry has long sought to codify ‘best practices’ and/or to identify the elements that separate venture firms that consistently post industry-leading returns from those that fall short. Appropriately, that is a topic for another post. That said, success leaves clues. Of the characteristics that great venture funds share I have found four that consistently appear, which I conveniently call the 4 Cs—a collaborative and collegial working environment; a consensus-driven deal selection and approval process; and, a cohesive team of investors that has a history of working together with minimal turnover. Sure, there are some top performing firms that do not possess all these characteristics, but I posit that an examination of firms that have consistently outperformed their peers over long stretches of time bears this out.

While few would argue that the venture industry is renown for having personalities lacking a healthy self-image, even the most immodest individual venture investors would rarely assert that they were solely responsible for their great personal track records. Indeed, when many prominent VCs left to invest for their own account independent of their prior firms few were able to repeat their earlier successes on their own. Returning to the music analogy for a moment, it is a rare frontman or guitarist able to mount a solo career equal to the glory and success achieved when just a member of the band that brought them their initial fame.

Venture team dynamics play a vital role in great returns. Moreover, having venture funds made up of investors that play off one another in sectors that counter-balance one another in booming and fallow cycles is a key ingredient to achieving consistent, industry-leading returns over time. No sector stays hot forever.

As such, the idea of assembling a “dream team” venture firm of discrete all-stars from other firms is no more appealing nor realistic in the real world than how supergroups of a generation ago fared. The connective tissue that binds a great rock band and a great start-up founding team and a top-tier venture firm are not all that dissimilar from one another. There are intangible qualities behind great partnerships that no spreadsheet or model can ever fully incorporate or capture, regardless of its complexity. Mick Jagger is Mick Jagger primarily because he came wrapped in a package with Keith Richards, Ronnie Wood, Charlie Watts and Bill Wyman. No self-respecting music journalist would argue that any of Mick’s bandmates were best-in-class at any of their instruments. However, those same journalists would likely stipulate that the combination of that merry entourage, as dysfunctional as it was at times, created something magical that the component parts could never pull off on their own. Mick Jagger’s less-than-stellar solo career in the 1980s is surely testament to that.

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