Lessons on Venture Capital From Groucho Marx

David Horowitz
Mar 9, 2017 · 4 min read
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Image: Shutterstock

If you want to learn how to be a venture capitalist, our industry offers a lot of great mentors, including experienced and wise luminaries like Fred Wilson, Bill Gurley, Mark Andreesen, Mark Suster, John Doerr, and Groucho Marx. Wait, what? Yes, Groucho Marx, the old school comedian.

Groucho Marx, whose real name was Julius Henry, is a famous American comedian, and actor who starred in dozens of radio, TV, motion pictures and Broadway shows. Groucho is also known for authoring many clever quotes that can teach young professionals basic venture capital lessons. Here are some examples.

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This is one of Groucho’s most famous quotes. It is alleged that Marx wrote this as a resignation letter when he decided to leave the Friar’s Club. You are probably wondering, “David, what does this have to do with venture capital?”

Well, as a venture capitalist seeking the best deals, most venture capital firms employ professionals who focus on proactive outreach to meet entrepreneurs, even those who are not currently raising capital. Of course entrepreneurs also reach out to investors to seek financing. While we appreciate when entrepreneurs reach out to us, we always wonder, “why is Touchdown so lucky?” Did other firms reject them? Are we really their top choice? Do they even have other options? Are we the investor of last resort?

Enter Groucho Marx. Why would this club (the entrepreneur) want me to be a member (investor)? Groucho is telling VCs to be careful and diligent regarding inbound deal flow that is unsolicited from entrepreneurs. Experienced investors know deal flow referred from trusted sources, like other VCs or portfolio CEOs, are typically higher quality opportunities.

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We don’t know the exact context of this Marx quote, but it perfectly encapsulates venture capital attitudes. VCs know that most companies fail to hit their metrics, and the role of a VC is to think critically and try to help identify underlying challenges for our entrepreneurs. Because most VCs fund less than 1% of what they see, we often take a “guilty before proven innocent” approach to reviewing deals. Marx is telling us not to assume the business will go as planned and to be thoughtful, and to assume you will pass on the investment unless you can get comfortable with the the many risks you identify in the investment diligence process.

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VCs frequently encounter companies similar to those we have already seen or funded. We rely on “pattern recognition” to avoid making the same mistakes twice. We know that if a prior startup failed because of market timing, we need to be thoughtful before making another investment in the same space. Performing diligence, including researching all the companies in a particular sub-sector, help us understanding mistakes made by other investors and entrepreneurs. Avoiding well-marked traps is a key skill in making smart investment decisions.

While Groucho Marx had a profound impact on the entertainment industry, I bet he never imagined that he would also serve as an inspiration for venture capital training.

I love Groucho so much that I nearly convinced my co-founders to call our firm Marx Ventures, but for some reason they said that might not be the best name for a group of (venture) capitalists.

David Horowitz is the Founder & CEO of Touchdown Ventures, a firm that manages the corporate venture capital funds of several large corporations. Prior to starting Touchdown, David was Managing Director of Comcast Ventures.

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by Touchdown or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

Risky Business

Thoughts on corporate VC from the team at Touchdown…

David Horowitz

Written by

Founder & CEO at Touchdown Ventures (manager of corporate venture capital funds)

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

David Horowitz

Written by

Founder & CEO at Touchdown Ventures (manager of corporate venture capital funds)

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

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