Lessons on Venture Capital From Groucho Marx
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.
“I refuse to join any club that would have me for a member”
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.
“Whatever it is, I am against it”
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.
“Learn from the mistakes of others, you can never live long enough to make them all yourself”
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.
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