Failing is not fun — not for entrepreneurs, not for investors. As an early-stage investor, I'm paid to fail. For every 10 investments I fund, I expect not to make money on two-thirds of my bets. A good baseball player will hit .300; that's the batting average a good venture capitalist looks for. A couple of home runs, doubles and triples and, with luck, you've made up for a bunch of strikeouts.
Failure happens for a lot of reasons. The company is too early to market and customers aren't ready to buy. The company is too late to market and other competitors got there first or crowded the market with offerings so the company's story can't be heard above the noise. The company doesn't get the product out as planned, on schedule, on cost, and burns through too much money generating too little revenue too late. Investors backed the wrong CEO and/or waited too long to upgrade management. And then there's the random and the unexpected. The market goes into an unexpected recession, slamming all companies whose businesses are tied to economic health — high-end retail consumer products, advertising-based media models, enterprise software … the list goes on. Or a key person quits, has a heart attack or does something stupid and has to leave.
Sometimes the company can recover, sometimes it's a knife through the heart. Any number of things can take a great idea and turn it into a great big wash out.
Failure is a personal experience for entrepreneurs — painful, costly and deeply humbling. They burn their own money, their friends' and family's money, and finally professional investors' money in pursuit of the dream. And when it doesn't happen, it's crushing.
Rolling the dice
It is said that a venture capitalist spends more time bemoaning his failures than celebrating his wins. In part, I suspect, it's because there are statistically more of the former. But it's not really the loss of capital that is so agonizing to an investor — it's the human drama. Watching an entrepreneur wind down her company and seeing the look in her eye as she fights and claws only to watch it all go. It's tough to watch.
It's tough to experience, as well. After all, a company's failure is my failure. Whether it's an entrepreneur I overestimated, a plan I signed off on, a technology that didn't pan out, I own it. I'm the one who believed and put my chips down. I'm the one who watched and advised from the board, who worked outside the board to co-develop teams and plans. And like entrepreneurs, I have backers who depend on me to be a good ballplayer, to make my wins large enough to make up for my losses. I take my responsibility seriously and spend most of my waking hours thinking about what I could have done differently and what I can do better. Managing 10 or more company investments feels, sometimes, like I can never really do enough.
For the most part, I've learned to live with failure. You can do a great job as an investor — pick a winning concept, assemble a competent team and board, pull together enough capital to take a run at it — and, well, nothing. Too late, too early, product glitches, management glitches, acts of God, it's all there as the great teacher.
On a couple of occasions, though, I've felt the sharp and lasting pang of knowing that I didn't act soon enough; that, had I done something differently (changed the CEO, not supported a spending plan, made a different strategic decision), the outcome might have been different. Situations like this are, for me, the most agonizing at a personal level.
Venture capitalists are not stock pickers or bankers or company managers. We are a kind of hybrid investor-operator, relied on by our backers to find and fund great opportunities, to help identify and develop teams that can execute and boards that can govern.
This business of funding new businesses is exciting, gratifying, exhilarating and intense; it's also stressful, exhausting and infuriating. It's a job in which the difference between success and failure can come down to a transformative sale, a key hire, lifesaving financing or just dumb luck.
Having been in the business 14 years, I find that the more I know, the more I know just how much I don't know. For me, that's a driver. It makes me want to learn more, do better, try again. Seems like that's what I've been doing since I learned to walk. I guess I should keep at it.
Michael Gurau, managing general partner of Clear Venture Partners in Portland, can be reached at email@example.com.
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