The Venture Capitalist
The Venture Capital Green Beret
Many argue agriculture and infrastructure need be developed before a widespread business base can arise. Though a certain degree of initial development in agriculture and infrastructure is necessary, it is business alone which can afford to expand, improve and maintain infrastructure. Without the tax base and development demand derived from a thriving commercial sector, welfare and non-welfare governments alike can only provide for limited infrastructure. More importantly, it is only an expanding base of industrial and services companies which can create the necessary number of jobs.
The problem of course becomes one of creating an industrial and services base out of not much more than raw human potential, and in some of the most remote and underdeveloped parts of the world. A top-down “trickledown” approach is incapable of the task, meaning a bottom-up, local and individual driven process must be applied. This is what makes the Venture Capital industry the perfect model. This bottom-up style of economic entanglement, new industry and job creation, is exactly what VC specialize in.
The bottom-up approach is powered by the endlessly creative and entrepreneurial spirit of humanity, and provides access to a near limitless supply of ideas and future business leaders. Venture Capitalists harness this boundless capacity by applying sophisticated filters, derived from proven experience, to weed through the many in order to identify those few business plans and management teams possessing the right combinations to become investable assets.
The sole purpose of the Venture Capitalist, the relationships and access, highly trained tools and practices they employ, is establishing companies which are productive contributors to globalization. For the economy this means a tax base, for the community it means jobs, for the investor it means Return on Investment and for globalization it means stability and growth.
Historically, less than ten percent of companies reviewed receive VC investment. Fifty percent of these fail, and forty percent only break even. This leaves ten percent of companies funded to realize the critical Return on Investment for all. A comfort working with and ability to derive value for stakeholders and shareholders from these success-failure rates is the role of and what differentiates the Venture Capitalist and the Green Beret alike.
Return on Investment is derived in a Venture Capitalist’s investment portfolio, from failure, through Constructive Destruction. This is the process of supporting efficient companies and cannibalizing inefficient ones and redirecting assets to the more efficient companies within the portfolio or the portfolios of other investors. This requires a VC possess the ability to, identify and analyze the value of assets within the portfolio at any given point in time, and to rapidly devise and execute courses of action designed to realize and enhance the value of these assets.
To further understand the nature of Venture Capital and to see how the industry is an analog and model for 21st Century Irregular Warfare requires an understanding of the investment world as a whole. And though such is far beyond the scope of this paper, we can discuss the basic structure of the now global investor community and how they collectively drive the global economy.
The global investment community is a tiered structure with Angel & Seed Venture Capitalists at the base and the Stock & Securities Markets at the peak. Investments move up through the many layers of investors between the base and the peak, with each subsequent investor further refining and defining the asset and improving valuation. At the base are companies with unstable valuations which are not clearly defined and represent higher orders of potential Return on Investment but also much higher magnitudes of Risk & Uncertainty. At the top are assets with stable valuations and which are clearly defined and represent lower ROI and smaller degrees of Risk & Uncertainty.
Where all the many layers of investors above are focused on improving the valuation of existing companies, Angel & Seed investors are the only ones whose role it is to invest in new companies. It is the Angel & Seed investor who comes in when the Risks & Uncertainties are too high, when the ROI is too low and uncertain for even higher level Venture Capitalists to get involved. Without this highly specialized capability and its dedicated practitioners the global Capital Markets would be impossible.
The willingness to look for and the ability to see assets and Return on Investment where the system cannot or will not, the application of conventional and unconventional thinking and the willingness to cannibalize inefficient assets before they lose all value, is what is necessary, to create assets from almost nothing and to develop an economy. This is not made possible by executing a predetermined plan as to which assets and of which type to invest in. The power of A&S investors is their ability to filter and harness the incredibly creative and productive entrepreneurial spirit of the near endless numbers of those seeking to participate in globalization. And this domain is both unique and common to A&S investors and the Green Beret alike.
This does not mean to imply there is not some predetermination as to which companies and business models receive investment. In order to qualify management and the business plan, to model Risk and to identify the ROI potential, investors must possess a well-developed and proven base of knowledge, experience and relationships in the industry in which the potential investment is or intends to be engaged. These abilities, far more than the money, are the real advantage the A&S investor brings to their investments and which provides for entanglement with the greater economic and financial engines and thereby much higher certainty of success.
The real importance of the A&S investor is his highly trained unconventional mind, which, like the mind of the Green Beret, cannot be taught but only refined in those who already possess it. This mind demonstrates its uniqueness in two fundamental capabilities: i) a thorough and fluid understanding of the subset of globalization in which the investment exists and must compete and survive; and ii) an ability to appropriately identify and articulate a quantified (specific) financial value (price) to the asset at any given point in time.
Venture Capitalists know how to put people to work in sustainable businesses. And at its very basest level, non-welfare state job creation is the current and future end-state of Irregular Warfare. We saw a greatly hindered and reduced version of this in the Village Stability Operations conducted by Special Forces in Afghanistan.
Excerpted- Irregular Warfare, Village Stability Operations and the Venture Capital Green Beret. Published- Small Wars Journal, Posted On May 14, 2012