Book Review: Learning from the Masters of Venture Capital and Private Equity

Venture capital and private equity are important components to societal investment. The book The Masters of Private Equity and Venture Capital by Robert Finkel delves into the concepts of what makes investment successful. Contrary to common knowledge the money is only one of the components while the factors of the market and the organization itself are equally important. Few want to invest their money in poorly run and sinking ships. 

One of the biggest steps in venture capital success is learning from mistakes. There will be some companies you make significant money off of and there are some that you won’t be so lucky. The key, like most other things in life, are to continue to learn from mistakes. Whether you’re Edison or the Rockefellers the process is the same. 

Investors often find a method to evaluate companies. They don’t just blindly pick some company and start pouring money into a deep hole. They use methods of analysis to ensure that the companies they are interested in meet certain qualities in the market, management, capitalization, potential, and methodology.  Without a proper evaluation it is easy to fall prey to wishful thinking. 

The authors also offer the need to turn research into commerce and foster innovation. Small firms succeed because they offer something unique. Their best changes for success lay in capitalizing on information and knowledge. Without research, innovation, and knowledge they will not be able to navigate the environment. All organizations should be learning organizations. 

Selecting the right CEO and ensuring you have management metrics helps to encourage proper decision making and accountability. When organizations have the right leadership and a methodology for navigating their environment they are more able to improve upon performance. Management metrics ensure that selected executives are actually doing their job. 

The book recommends a couple of analysis that is helpful:

Portfolio valuation: Looking at various components and choosing proper assets it is possible to understand the risks and potential rewards of investing in particular companies.

Waterfall analysis: A method of understanding preferred stock return with liquidation preferences compared to common stock return.

The authors do not discuss the concept of behavioral aspects of organizations. Strong organizations have strong core sense of purpose and exhibit the proper behaviors to succeed. These behaviors are based in inquisitive, collaborative, learning, testing, and civility behaviors that help ensure that the organization moves upward. Without these behavioral metrics to analyze the overall thinking process it is possible a single simple market success cannot be regenerated.

Finkel , R. (2010). The masters of private equity and venture capital. New York: McGraw Hill

Portfolio Analysis and S.W.O.T Analysis from Timothy212