My partner Bryce Youngren pointed me to some research by Chicago GSB Professor Steven Kaplan who tackles the perennial question of whether one should bet on the jockey or the horse. The presentation, although meandering, does have some good data in it. Prof. Kaplan’s methodology is not perfect–his sample is biased to companies that have gone public but the rest of the analysis is thorough.
In the end, Prof. Kaplan concludes that at the margin one should invest in the idea and not the team, partly because a team can be augmented/improved while an idea is much harder to adapt. I would agree with this in general. One of the major values of a good investor is helping grow the team. I would, however, add a couple of caveats:
- Life is too short to back poor teams, no matter how good an idea is.
- Ideas are easily changed when a company is small and has little inertia. When there are just a couple of founders sitting around a table and the idea is on a beer-soaked napkin almost anything can change. The bigger the company gets, the more inertia it picks up and the harder it is to change what the company is about.
The best part about reading the presentation was discovering a wonderful quote from Warren Buffet:
When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
I am an atypical VC. I specialize in partnering with entrepreneurs to help them create new startups. First and foremost, I look for ideas that can lead to very scalable businesses with solid economics. We work closely together for weeks or months tuning the idea. If the entrepreneur I’m working with can be a great startup CEO, that’s wonderful. If not, we jointly go out and recruit one.
