Venture Capital
An Better Than N’an
The Ancient Wisdom of Venture Capitalists and Mama ‘nem
Post #1 of #20: I’m reflecting on twenty years of personal and professional insights in Birmingham. Visit www.medium.com/HonestlyEd to read the full series.
The South births witty wisdom. No one owns it, though many can claim it.
That wisdom is often shared as pithy sayings — aphorisms — by community elders, big mommas, papas and pastors.
Over the years, some of these truths stuck with me more than others. One of my all-time favorites, subtle yet packed with insight exclaims: “an better than n’an.”
An = One, something
N’an = Zero, nothing
I spent ten years of my career supporting and nurturing Birmingham’s network of venture capitalists, entrepreneurs, and systems builders. I learned a lot, but nothing more significant than the kernel of wisdom found in this saying: “an better than n’an.”
That’s because venture capitalists process things differently.
How Venture Capitalists Work
A venture capitalist (VC) typically makes money two ways. First, she is a steward of funds invested by Limited Partners — high net worth individuals and institutions — seeking a return on their dollars. The VC receives a fee for managing these funds.
Then, she takes those Limited Partner funds and invests them in high growth entrepreneurial firms. As the entrepreneurial firm grows its revenue, the VC’s potential to share in the profit grows.
VCs do not want to lose money, though they know risks-reward results can be more dynamic than investing in other vehicles like real estate or stocks.
In the short term, real estate is a stable, slow and low return investment. Public stocks offer greater returns than real estate in the short-term, but most investors have no influence on the performance of the company. VCs, however, may influence a firm’s CEO — potentially hiring or firing him; enhance the firm’s access to key customers, or coach the firm’s leadership team through business challenges and opportunities.
VCs bring cash, talent, and a boatload of experience to bear on high-potential entrepreneurial endeavors. They are especially helpful to firms led by brilliant, passionate company founders that may have invented a product or service, but lack the business experience and resources to take their ideas to the next level of success on their own.
Smart Money Never Moves Alone
Venture capitalists have a reputation for being hyper-competitive and cut-throat. While they can be incredibly shrewd and efficient with their time and money, I found good VCs to be creative, collaborative and generally prefer to partner on deals where it makes sense.
One might think, ‘if they are so smart and have so much money, why not just out-maneuver the competition and gobble up the opportunities for themselves?’ Why not go at it alone?
VCs do not invest alone because that would be akin to putting all of their investors’ money into one basket. Just as you wouldn’t invest 100% of your money into one stock — no matter how good it is.
A good VC is going to see 3 or 4 of 10 deals do really well, and 1 of 10 deals are transformative; stars that really outperform the rest. 50% of their deals don’t do much better than the stock market, in terms of rate of return. Some of them actually fail and lose money.
Look at it this way, a VC should be a masterful risk manager. I learned about financial risk in business school. But, working with venture capitalists helped me understand that a greatest risk in business is people risk.
And, partnering well with others can be an effective strategy for managing the risk out of business opportunities.
The greatest sources of risk for most VCs is operator risk. An operator is the person who runs the entrepreneurial endeavor. Think about it — how many people do you personally know that have successfully grown anything from the ground up to grand success?
People that have proven they can build well and then build again are in critical short supply. VCs know this and actively build their networks by nurturing small teams and by acquiring talent through their investments in companies.
They regularly incubate and promote talent.
Enter mama ’nem.
Watch The Company You Keep
“Are you taking care of your sister?”
“Have you talked to your line brothers?”
“Is your boss treating you well?”
“How is your co-worker, Kellie?”
No matter my stage in life my mother has been consistent in her inquiry about who I was with, how they were doing, and how they were treating me. Ever since I left home at the age of 19, Mom’s barometer of success was often who I was with and what I was doing with them.
If I told my mother I was doing everything on my own, then she would have known I was on the wrong track. My mother wants me to be successful, but she’d rather I have a portion of success along with some happiness than to attempt to be 100% successful alone. That goes against the laws of nature in life inasmuch as going at it alone in business has natural ceilings.
An better than n’an.
Motherly wisdom pre-dates the smart money crowd.
Investing resources in good people, partnering well and appreciating the validating wisdom of crowds are common values of the smart money crowd and mama ‘nem.
In other words, birds of a feather fly together.
Honestly,
Ed.
