It’s an odd time to publish a valentine to venture capitalists, the deal-hungry brigade who helped create the speculative stock market bubble that is now a distant memory.
By Justin Schack
March 2001
Institutional Investor Magazine
It’s an odd time to publish a valentine to venture capitalists, the deal-hungry brigade who helped create the speculative stock market bubble that is now a distant memory. But the long lead time of U.S. book publishers (something less than Internet speed) means that with many high-tech stocks now trading at a fraction of their former value, Jeffrey Zygmont, a freelance business journalist, comes late to the party with The VC Way: Investment Secrets from the Wizards of Venture Capital. As the author tells the story, venture capitalists emerge as heroes who helped create the great economic boom of the ‘90s.
Zygmont argues that modern venture capitalists, in supplanting sluggish corporate R&D, have underwritten the innovation and entrepreneurial risk-taking that helped spark and sustain the longest-running expansion in U.S. history. “Venture capital is a dynamic and relentless change agent that challenges entrenched practices, attacks commercial power centers and undermines the established order,” he writes. “Venture capital is subversive. And subversion - changing the guard - is the founding principle of the United States.”
The author sets out to bring readers inside the plush suites of Menlo Park, California’s Sand Hill Road and other venture capital enclaves, and in this he succeeds. But he fails to explore what is possibly the book’s most intriguing question: What can ordinary investors learn from the experience of these New Economy financiers?
The book does describe some of the techniques of successful venture capital firms. In a chapter entitled “Showmanship,” the author discusses at length the importance of good public relations for venture capital firms and the companies in which they invest. Some firms, such as Battery Ventures and Sequoia Capital, have partners in charge of burnishing their own and their portfolio companies’ images, Zygmont writes. Other prosperous venture capital outfits, such as Greylock Partners, focus on backing good people first and good ideas second, while nearly all make sure to take an active role in operations and strategic decision making at their portfolio companies.
How do such tactics help retail investors, especially in the harsh light of the Nasdaq composite index at 2,300? Unfortunately, few are applicable for individuals, regardless of market sentiment. Everyday people don’t sit on the boards of the companies they invest in. Nor do they have Rolodexes filled with industry contacts who can help rework a business model or recruit a new CEO.
Not surprisingly, Zygmont’s financiers are squeamish about discussing their difficulties and failures, of which there are no shortage. The author does cite a few examples of venture capital-influenced management or strategy shake-ups at start-up companies, but he omits the names of the concerns involved.
And Zygmont’s reporting goes no further, leaving the reader without the independent analysis of venture capital returns and specific investments that might shed light on what individual investors should seek or avoid when sizing up potential risks. Indeed, in a very short chapter about business-model fads entitled “Filtering the Hype,” Zygmont lets readers in on this “secret": Successful investors “use good judgment.”
In fairness to Zygmont, he has taken on a difficult task. The attributes that make venture capitalists so appealing to the public - the potential for spectacular returns combined with equally high risks in an ever-changing environment - also make the topic exceedingly difficult to capture in a book, which inevitably runs the risk of becoming dated the moment it rolls off the press.
Another virtue of The VC Way: its focus on three successful women, each an anomaly in an industry dominated by old-boy financiers and male technogeeks. Ann Winblad, a favorite source of sound bites for technology reporters, was an obvious choice. Less so were Nancy Schoendorf of Mohr Davidow Ventures and Jacqueline Morby of TA Associates. Schoendorf exhibits “an outright unwillingness to accept failure,” Zygmont writes, while Morby possesses “a candor and directness that make deal-making with her a reassuring experience.” Still, Zygmont neglects to explain how these financiers manage to thrive in what is often a hostile environment for women.
While The VC Way celebrates the venture capital industry, Zygmont fails to suggest how the experiences of these financiers might shape the portfolio strategies of average investors, who deserve some explanation for the recent market meltdown. After all, it was the folks on Main Street who lost billions on the stocks of overvalued technology start-ups, not the stars who financed and hyped them from Sand Hill Road.
