‘Spirit’ alone doesn’t make a venture succeed

One of the most exciting parts of my job as a venture capitalist is meeting entrepreneurs with passion and commitment to their idea and venture. Whether they have invented a new way to collect and wash your socks (true story) or a Web concept that will change the world, their enthusiasm and drive inspires and represents the best of our meritocracy. Without the catalytic energy that converts an idea to a venture, innovation would be left to R&D departments of large corporations.

Venture investors value passion and a great idea but know, from experience, that this is necessary but not sufficient. I’ve personally been part of great ideas that have fallen flat or run off a cliff for lack of real venture building experience. I can tell you that there are a great many great ideas, but far fewer experienced managers to convert that idea into a successful fast growth company.

Don’t get me wrong. The “spirit” of entrepreneurship is essential to new venture conception and development. It’s just that early-stage venturing is complex and dangerous place for passionate but inexperienced entrepreneurs to cut their teeth.

The complexity is a function of the myriad of little and big things that need to be done to get the rocket ship pointed in the right direction and launched so that it ends up on the planet you are targeting. To continue the analogy, if your rocket ship is off by five degrees at liftoff (the wrong strategy), you might end up a million miles off course, flying into the sun rather than the moon you might have been targeting.

Moreover, if the ship doesn’t have an experienced captain, wrong turns might run you out of gas (cash) without hope of finding a fueling station (more investment capital) before you get to your targeted destination — that’s the dangerous bit.

Understanding that even the most experienced team can blow up a fast-moving ship, investors nonetheless bias experience over passion when it comes to the most challenging part of the ride — accelerating growth so as to seize the market opportunity.

A less experienced inventor-founder might well be fine for a year or more getting the early work done. A professional investor, however, will put the founder on notice that once things get busy, the board will move to add experience to the team, often starting at the top.

Often, the founder can retain an important senior team member role based on the knowledge he or she might have in a specific domain (technology, marketing, sales, etc.), provided that he or she can adapt to being part of a team rather than the leader of the team — rare, because it’s hard.

Venture capital investors value founders that have the emotional security to dispassionately prioritize decisions that are best for the company, even if those decisions aren’t best for the founder’s job description.

Even when a founder might not have the experience to own a senior role over time, investors often seek to keep founders for their institutional memory, if not for their inspiration and PR value; many a founder has crafted a non-functional, but highly visible, role as “chief evangelist,” or some equivalent title.

While it’s understandable that a founder might have an emotional response (rage and bitterness come to mind) to this view, this professionalization of the team is not only rational and critical to mitigate risk that might impede success, but is in the founder’s interest.

Many a founder have run companies off a cliff only to end up with nothing to show – or lose everything — when a more dispassionate view could not only have saved the founder’s investment and time commitment, but actually reward it.

Rare individuals

From Bill Gates (a technology guy who made the bridge to CEO) to Gary Hirshberg (who would likely not have been hired to run a yogurt company had he not founded one), there are plenty of examples of founders who’ve “crossed the chasm” without the requisite experience. So, too, are there examples of hired guns who’ve come in and wrecked a new venture despite their years of experience.

That there are exceptions does not give comfort to investors who know from experience that these rare individuals are indeed rare. Far fewer inexperienced growth company CEOs make that transition than don’t. And for investors who themselves have investors to answer to, it’s indefensible to claim that you’d hoped the founder could make that transition when you know, statistically, that it’s unlikely.

Lest you think that I’m being unduly harsh, know that this rule about spirit vs. experience applies to me as well. Prospective investors in the new venture capital fund I’m currently raising are checking my experience to decide whether they plan to invest based on my track record. So I live by the words I offer you.

Know this, ye founders of great ideas. You are the dreamers and catalysts of this nation’s small business-driven economy and ought to be celebrated accordingly. Know also that your dreams will remain dreams unless you either get very lucky or, more practically, find the courage to set aside your ego and do the right thing for you and for your vision.

Michael Gurau, managing general partner of Clear Venture Partners, Portland, Maine, can be reached at mg@clearvcs.com.