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
