The Euro Crisis and VC strategy

Watching the Euro community grapple with and fail (or so it seems) under the onslaught of treaty country performance, I’m minded of how I think about VC strategy, and what it means for what they’re doing.

I rate investments by two criteria: Is it a Big Wind, and is it a Capable Team.  There is a third as well, but it’s irrelevant to this discussion.

A Big Wind is a market opportunity where lots of money will change hands.  And Capable Team is a team that can seize the opportunity and ride it out despite all twists and turns (and there are always twists and turns).

So we invest, and things don’t go well.  Like Greece, the company’s income is less than its expenses.  Over time.  Repeatedly.  Without apparent hope of things turning around on their own.

I’ve developed a 2×2 grid for asking what to do with a company based on evolving circumstances.  It looks like this:

Presentation1.pptx
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If the wind is big and the team is capable, you don’t need to do anything: you let ’em rip.

If the wind is big but the team isn’t capable, you topgrade the team until they become capable.

If the wind is small but the team is capable, you pivot.  You find a new wind, or a better take on the existing wind.

If the wind is small and the team is incapable, you let it go.  You sell it, you shut it down.  You dispose of it.

The Euro community is foundering.  I don’t know enough to know if the wind is small or the team incapable, or both, but someone should make this analysis if they want the community to survive.

What the community is doing instead, and what a lot of VC firms do instead, is probably the worst of all possible worlds: put the incapable team on a starvation budget so they can’t possibly take advantage of a big wind, but at least they won’t go under right away.

It’s neither fish nor flesh nor fowl.  And it won’t serve the Euro community any better than the same strategy serves us in trying to get our startups to thrive.

Your thoughts?

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