I worked in venture capital from 2006 to 2010, and over time, noticed an increasing presence of core finance professionals and Chartered Accountants in top roles at VC firms. It seemed concerning to me, though I probably couldn’t initially figure why, given they were right where they should be, predicting explosive growth and chewing through numbers and spitting out stakes, exit scenarios and return expectations.
It subsequently struck me why their prevalence felt a bit off. It was because I realized that venture capital investing is more art than science. It was about better understanding the challenges the business intended to solve, its demand, and if and how the company had some advantage, as well as the company’s journey so far. And then you’d have to try and get a handle on the promoters and core team. On how they were as leaders, and if they had it in them to be both visionary as well as empathetic and responsible leaders. If they could give the company its due (I believe companies are, or at least should be created to serve a big and ideally meaningful purpose in the best way it can, and not just be a vehicle to make promoters rich).
While CAs and MBAs in Finance (guilty!) excel at analyzing numbers, those figures don’t tell the entire backstory, and even less of its future. I’ve had the privilege of working with brilliant CA’s and finance professionals, but venture capital requires a different perspective that isn’t always focused on and emphasized in their training and core professional work on a regular basis.
I remember a meeting with a Partner from a Big Four firm and a promoter who had flown in from Delhi to discuss potential investment. As the meeting stretched on, the promoter grew a bit anxious about catching his night flight back. The Big Four partner suggested they both could take the evening local train, confident he’d make it on time to the airport. The promoter instantly rejected the idea as too pedestrian.Of course no one would in their right mind consider a peak hour local train in Mumbai to make it to a flight, as they would face far more stresses than Dave Carroll’s guitar did on the United flight. Of course, there were options like an even later flight, or staying in town another day.
If a big shot partner at a Big 4 firm was willing to take the train with him, and you want to invest in an entrepreneur who is at least open to roughing it out, but who instantly shoots down the idea as being beneath him to, gave us a glimpse into him as a leader.
No amounts of number-crunching would have told us this.
I was reminded of the VC days and this incident when reading about investor Peter Lynch saying how studying history and philosophy prepared him for the stock market, and how investing is an art, not a science. He said those trained to quantify everything tend to miss the bigger picture.
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