“Journalism is helpful because you are often parachuted into stories that you know absolutely nothing about. I found the fact that I had been trained to make up my mind about a confusing set of information extremely helpful,” Michael Moritz , chairman of Sequoia Capital and former Time bureau chief.
Since the rise of Michael Moritz, one of the most fabled venture capitalists, there’s been a constant dispute about whether the journalist-to-venture capitalist path is a way to destruction or success. Based on my 12-year career at Bloomberg and five-year stint as a tech investor and venture partner, I’ve mulled over the pros and cons of both and concluded that the two have much more in common than what first meets the eye.
Both journalists and venture capitalists struggle with mainly the same end decision; is the story worth publishing and is the story worth investing in. Approaching the issue from the notions of news judgement and investment decision, the two professions have striking resemblances when it comes to both upstream and downstream processes. Journalists rely on newsflow while venture capitalists depend on dealflow. The quality of it is key.
Both newsflow and dealflow won’t typically come from one fixed source. Instead, it comes from various and unpredictable, often even doubtful sources. There’s press releases and pitch decks, press events and pitching events, public relations agents and bankers and funding agents, web aggregators and crowdfunding platforms, and most importantly proprietary newsflow and proprietary dealflow. The processes are almost identical upstream. That’s interesting!
News Judgement and Investment Decision
But even more interesting are the similarities in downstream processes of news judgement and investment decision. Whether to publish or not, or to invest or not.
For the downstream process, let’s assume the following about hierarchical similarities between newsrooms and venture capital; managing editors are equal to general partners and reporters are equal to principals. Furthermore, the owners of news organisations may affect news judgement just as limited partners may affect investment choice. Process similarities start from the top were managing editors meet for deciding over the most important news items, much like the general partners meet over the best investment opportunities.
What’s more, each player may be specialised. Journalists have beats while venture capitalists have verticals. One financial reporter may follow the forestry industry beat, while another principal may focus on financial technology startups. Similarly, reporters can be stage focused following only listed firms, while a principal may focus on Series A funding. Hence, team structures in newsrooms also resemble those at venture capital funds. This can be seen in office layouts of the two, both are strikingly similar complete with pantries and private booths.
This may not come as a surprise because both journalists and venture capitalists share similar work pressures and everyday decision characteristics, such as frequency of decision (how many decisions to make) and distribution of outcomes (what is the impact of the decision). While reporters and principals are working with tens or hundreds of flow items, only the most promising items are elevated to editor/partner level where the big go or no-go decisions are made.
Also, the hierarchy in flow processes are also similar. Reporters and principals siphon most of the dealflow, bringing the best cases to editors and managing partners. The actual heavy-lifting in both newsrooms and venture funds begins only after the flow items have reached this editor/managing partner level. While every term-sheet includes a heavy administrative process, so do the biggest news stories. A Pulitzer Prize story may involve more teamwork than an early investment into Google.
Against Today’s Venture Capital Trends
While venture capitalists have traditionally been perceived as analytical scouts, the hallmark of a good journalist, a new breed of venture capitalist has emerged. The ever ballooning venture capital industry has lead to increased competition between funds as they scramble for quality dealflow. The best entrepreneurs are becoming choosers. The leading venture funds, such as Andreessen Horowitz and Atomico, are hence introducing services that penetrate the operational level of the startups.
As a result, venture capitalists are expanding their job description from investors to contingent portfolio-level operatives as some general partners are morphing into so-called operating partners. This trend, which emphasizes operational experience, has its pros and cons but it’s unsure whether it will hold as a trend.
Reputation and The Power Law of Venture
In the end, both news and venture capital are founded on a key asset that is difficult to disrupt, namely reputation and the power law that derives from it.
This reputation greatly impacts the quality of the upstream process. An unexperienced freelance journalist must hustle his or her way through newsflow when more established players can rely on preferred selection. The exact same applies to venture capital. As a real-world example, when I was a young Bloomberg reporter the Bank of Finland cut its interest rate below that of any other European central bank (this was before the establishment of the European Central Bank in 1998), effectively lifting all European yields on the expectation that others would follow suit amid a transition into the ECB. Knowing that the world’s bond traders used Bloomberg, the then Bank of Finland governor called my private line in Stockholm for an interview that eventually quelled the markets. I didn’t have to lift a finger for a major market-moving scoop that moved billions of dollars. Bloomberg’s reputation alone stood for the news flow. At the same time, other news agencies didn’t reach the governor even for post-event comments. They were left to cite us.
Similarly, reputation is the keystone for continued venture capital success. Venture funds without success investments must hustle for quality dealflow, just like freelance journalist have to elbow their way to news. And facing lower dealflow amidst tighter competition, venture funds may find it hard to resist the temptation to operate. At some startups, the structure and layout of their pitch decks can reveal which “operative” venture fund has invested in them. This overall conformity isn’t necessarily a good thing as too much operative hustling may lead to conservatism at the entrepreneur level and lack of focus at the fund level.
But much like the modern hedge fund industry, founded by journalist Alfred Winslow Jones, the venture fund business is steering towards a more activist role. While this may make sense in private equity, where entrepreneurship have mostly been lost and corporatism has begun to reign, it remains unclear whether activist venture capitalists can distill true value into entrepreneurial teams that thrive on unique innovation. The temptation to operate risks fracturing a venture fund’s reputation and lead to an adverse effect on dealflow.
All said, while there undeniably is overlap between venture capital and journalism, the biggest factor explaining the venture capital success of some journalists may be something as simple as selection bias. As with the world’s top universities, leading news organisations and venture funds both attract the most remarkable of individuals. Moritz, for example, holds a history degree from Oxford and was awarded the Thouron Scholarship at Wharton. While process similarities of both journalism and venture capital may explain some of the successful transitions between news and venture capital, true venture success comes only to remarkable people. Exceptional people thrive in their professions regardless of the sector.
‘’We are only as good as the next person we hire to become part of Sequoia,’’ Michael Moritz.