.: on the frontiers of venturing and venture investing :.

Tuesday, February 12, 2008

"Bets n' chips" - Implications for investors on the frontiers.

There seem to be two types of bets that investors make when doing a deal. A bet on the team. A bet on the plan. The closer to the frontiers (early stages and deep change) the greater the emphasis is on the team. And rightly so. We all know that plans don't last on the frontiers.

So how can we get better at investing on the frontiers? Surely betting on the team alone isn't a sound investment strategy.

From my conversations the current practices seem to be either focused on 'rolling up the sleeves' and getting involved directly (few, high-cost investments) or being a hands-off patron (many small investments). Either that or back off from the frontiers and use conditional investment to achieve specific results (e.g. disadvantaged employment or other enviro-social activities). The limitations in each of those should be fairly self-evident.

So what else could we make bets on? Well if venturing is a process, we could bet on the process they are following. If we know plans are not static, what is the venture doing to continue the process of framing, planning, and connecting?

And what other practices could we employ? Well if one of the biggest chips an investor brings to the game is their social capital, well then how can that capital be better employed in the task of connecting? Going back to the image above, we can see that at minimum it requires a venture to have articulated simple and accessible spaces. I wonder - how many entrepreneurs and their investors would truly describe the primary spaces of their venture in the same way? How about in your venture or your portfolio? My bet is that's strongly correlated to the difference between friction and luck.

Summing up, that leaves us with making bets on:
  • a team;
  • their venturing process; and
  • their spaces (accessible and simply articulated).
And it means bringing our social chips into the game to make the connections the venture truly needs (more in a future post).

Now that's an investment space I'd bet on.