Everyone knows venture capital is going through a long series of drawn out market corrections, adjustments, contractions, and so forth. During this time, people have been innovating around venture, adding more operating partners, creating platforms, raising either really big or smaller funds. There’s also a belief that data will help investment dollars better determine where to go. The theory is that, with more data online, investors can leverage it to better inform investment decisions and, by proxy, their returns.
The problem with this mode of thought — this science of venture, of markets, and of data — is that it doesn’t allow room for the art of venture. I have tried to write about this. Specifically, I’ve tried to come up with my own definition of what is venture capital to me — now, it may not be this to you — and this post generated a lot of comments disagreeing with my definition — but this is what venture capital means to me:
Venture Capital is the aggregation of external capital by an institution (including companies, or even family offices managing their own funds) or individual with the sole purpose of investing that capital (often as a lead investor) into (relatively) early-stage, privately-held companies based on scarce information (imperfect information) with the intent of funding and assisting in the growth of businesses, products, and services that mature alongside markets to the point where the investor can realize a larger return, either through an acquisition, secondary share sale, or going public and liquidating within a 7-10 year time horizon, if not sooner.
There are a few people in venture who currently operate this way. I’d love to find more. One of those people is my friend Bipul Sinha. He’s a partner at Lightspeed. He will find entrepreneurs before they even know they’re entrepreneurs. He will help them. He will guide them. And, when they’re ready, he will prepare them to meet his partners and write a pretty big check, right up front with just a few slide decks and a great team. This is what he did with Nutanix, which is now the fastest-growing enterprise IT appliance company, in terms of revenues. ever. Ever! And, this is what he did with Pernix, which just made a big breakthrough in server-side flash and raised a healthy Series A from some of the most experienced enterprise investors on Sand Hill. Sure, he may do his own type of diligence and market research, but he operates with conviction and courage before due diligence, he operates on intuition and is willing to take a big risk where his peers may not write a check. In an era where many investors are collecting fancy tiles in later-stage growth deals or waiting for momentum to kick-in or scientifically trying to make sense of disparate and oftentimes irrelevant data, it’s refreshing to see someone like Bipul put the art back in venture.