Experienced Based Venture Investing: The Primacy of the Team

Over the years, in both the class room and the real world, I’ve spent a fair amount of time and energy talking about the primacy of the team, as compared to the technology or even market, as the single most important factor in evaluating a potential venture investment.  The “A team with B opportunity trumps B team with A opportunity” rule of thumb is one of the most familiar in the venture investing business. 

Just why the team is so important is something many commentators have weighed in on, with more or less convincing arguments.  But rather than logic – something many entrepreneurs have made a career of defying in any event – perhaps a more convincing defense of the rule that team counts for more than anything else is experience.  In my experience – how about yours? – when I look back at my less than successful venture investments and ask “what happened?” by far the most common answer is “the team screwed up.”  (By the way, once on board, active investors are part of the team – a part that can be as dysfunctional as any other part.) 

Now, I am not suggesting that the majority of cratered deals would have worked if the team had not failed.  The analysis is more subtle than that.  What I am suggesting is that in my experience as a principal in several handfuls of venture-backed deals that went south and a collateral participant in at least several dozen such ill-fated venture investing adventures, the absolute majority of those failures could be attributed to team weaknesses, the majority of which manifested themselves before a final grade on either the technology or market opportunities could be fairly given.  Put differently, it’s not the teams that fail after the market and/or technology opportunities are verified that account for most cratered deals, but the teams that failed before you even knew whether the technology or market opportunities were real.

So, the next time some B team asks why being an A team is so important to venture investors, maybe the simple answer is the best: because the proximate cause of failure is usually team-related, rather than technology or market related.

 As I said, I am curious what others think.  In your experience, looking at your own portfolio of deals gone south, is team the leading proximate cause of deal failure, or something else?

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About Paul A. Jones

Serial venture capital backed entrepreneur, angel investor and venture capital investor; Co-chair of the VentureBest team at Michael Best & Friedrich, LLP.
This entry was posted in Entrepreneurship, Venture Captal and Angel Investing. Bookmark the permalink.

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