There is lots of partner tribalism in venture capital, but one worth noting is the schism between pickers and pokers.
Most IT investors think biotech investors are “mere” pickers. In other words, to the extent said biotech VCs are successful it is because they get behind the right technology/platform/people and ride it. To that way of thinking, your average biotech venture investor is going to do diddly to assist a typical investee — sit at a bench, and stain my blue shirt? be serious! — so they are, at least from the perspective of their non-biotech VC brethren, pickers. All the work is in the picking, and once they have done their 1.5 investments that year they might as well go on holidays.
Following the same stereotype along, most venture investors see themselves as pokers. That is, they poke, and probe, and cajole, and generally try to push the company in a direction that they, in their wisdom, think is the right one for said company. Information tech venture investors see themselves as pokers, and look down their noses somewhat at biotech sorts as mere pickers.
So who’s right? Both and neither. While there is no doubt adept investors can add value now and then, the reality is, I’m increasingly convinced, that 90% of the value in venture investing comes at the picking stage. Don’t tell anyone, but so long as you fire incompetent people, act impatient now and then at board meetings about progress and spending, and otherwise generally stay out of the way, you’re probably better off following the medical dictum of “first, do no harm”.
The preceding will annoy lots of smart people I know. They like to think their 2% of asset management fee pays for more than just making a good private equity stock pick and then getting the hell out of the way, but it doesn’t (other than in true seed investing, which is a very different business).
In the debate between pickers and pokers you don’t always win with with good pickers, but that’s definitely the way to bet your money.
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Paul, I think that an ‘average’ biotech venture is quite different from an average IT venture. Strictly speaking, the life cycle of a biotech venture and that of an IT venture are difficult to compare. I do not know if a VC will invest in a biotech prototype if a large wet lab is still needed for developing it into a viable business. Patent issues are also different in both industries, as are the regulatory frameworks governing them and hence strategic complexity.
For an average biotech venture to work on the same time-scales to produce cash returns for the VC, the biotech venture has to be far gone in its stage of development, compared to a comparable (if at all) IT venture.
So while I doubt a biotech VC ever has to ‘sit at a bench’, or get himself injected with the latest gene therapy in development, I do think your “pick-poke” framework covers the centre of the bell-curve quite nicely.
Nice post!
Hi Paul,
Great post!
I’ve been a VC on both the IT and biotech sides for more than 10 years. One of the questions I always got was “what can you offer in addition to money?” (i.e. are you just a picker, or also a poker?) The idea being that all VCs have chequebooks…but extra-good VCs can do even more.
I always offer a few examples where 1) I helped get a higher price in an M&A deal, 2) I was able to introduce my investee company to a key strategic investor who provided leverage, and 3) as a board member I asked a key question that prevented a disastrous technological decision from being made.
Yahoo…I must be a hell of poker, eh? Not so much – out of dozens of VC investments over those years, hundreds of meetings and introductions and board meetings, out of thousands of opportunities to be a poker and not a picker?
If I can only come up with a handful of examples where I really added value rather than just money, then I would say that MOST of the time (even more than your 90%) VCs are pretty good piggy banks. But if a venture company wants to succeed it will be because of management’s and employees’ abilities, strengths and work effort. It is important for entrepreneurs to know that going into the VC process. 1) Don’t take less money or worse terms from somebody who claims they offer value-added stuff – most of the time they wont deliver. 2) Never count on your VC providing a deus ex machina rescue. Only you can develop the products, get sales and deliver the goods to customers and investors. Believing your VC will do those things for you will make you weaker, less committed, less successful…and awfully disappointed when they turn out not to have a magic wand to solve your problems.
Not that that will stop the VCs from trying to build up their role in any successes that do occur!
A poker can mean bad news considering the majority of pokers in vc don’t know their ass from their hand. Remember, there’s still lots of bubble money out there; and there are a ton of partners out there who made their career during the bubble when one could do no wrong. The problem with the megalomaniac world of VC is that there are no real standards for admission; one invests, waits 5 years; bats 10%, then moves funds where aforementioned track record gets buried.
If you’re looking for a ‘poker’ for your board and its not a sequoia, accel, or kleiner top partner type; would really reverse the due diligence on the partner…make sure you do reference calls at prior portfolio companies; make sure you don’t allow a newbie to use your company as training wheels; and most importantly, if they really believe in you, make sure they have the proper amount of money set aside for you…syndication leads to more politics as much as it does more value-add
good post — after a short 3 years in the vc business (as an IT investor), I have realized that the majority of the value being added by our firm is actually being added to the LPs and not the entrepreneurs.
that is, that the picking is how we make (and avoid losing) our money, versus poking — taking broken ideas or bad teams or busted plays and fixing them.