Hey, Hotshot

Remember that epic “Get the Feeling” ad campaign that Sports Illustrated ran during the mid-1980s? I seem to recall some print advertisements and perhaps a television spot or two, but it’s the billboards that peppered Brooklyn during those summers that seared themselves into my memory.

Maybe it was the in-action pictures of larger than life heroes rendered at 14 by 48 foot scale? Or perhaps the provocative captions that asked questions most mortals would never be able to answer? One of my favorites accompanied a mid-swing picture of slugger Don Mattingly: “How Does It Feel To Turn a Slider Into a Souvenir? Get the Feeling. Sports Illustrated.” Then there was the one featuring base stealer extraordinaire Rickey Henderson in his classic “I’m about to run” pose: “How Does It Feel To Know You’re About To Break the Eighth Commandment? Get the Feeling.” Of course, that question was a bit less remote in a neighborhood where “thou shalt not steal” was considered more of a suggestion than a hard-and-fast rule.

But it was an over-head shot of some over-sized state college football stadium that captured my imagination. Splayed out across every inch of Astroturf were dozens upon dozens upon dozens of corn-fed Midwestern boys stretching before an early-season practice, all with one question on their mind: “will I make the squad?” The caption below asked, “How Does It Feel To Know You’re Just Another High School Hotshot?”

And lately, when the day's FexEx drop is particularly bountiful and several more private placement memoranda are added to the pile already strewn about the sidetable in the office, I've wondered if that ad might work just as well for the private equity world.  After all, top quartile funds are as plentiful as fleet-footed recievers out of Ottumwa or Odessa.

Indeed, in 2011 a bumper crop of freshmen will be vying for a limited number of open roster spots.  What factors will seperate the starters from the bench-warmers from the water boys?  This year, simply being good won't be close to being good enough; my own two cents is that too few GPs think critically about what makes them and their strategy truly distinctive and defensble. 

So in honor of the new year -- and the inevitable flood of funds expected to come to market in 2011 -- I thought I'd focus the first few posts of the year on fundraising, offering over the coming weeks some going-to-market observations, tips, and maybe even best and worst practices. 

After all, there's little comfort in knowing that the number four quarterback at BCS-bound State U probably has the raw tools to play in the NFL if you actually happen to be that number four quarterback.  Maybe over the next several posts we can work through throwing mechanics and defense-reading a bit in hopes that the competition for the scarce roster spots will be more robust.

Comments

[proales]

Really looking forward to the series...

[Harry DeMott]

Really good post - and some good food for thought.

I've been musing on that for a while as regards the VC space.

For the longest time - there were few VC's and access to them was difficult - and building companies cost a ton of $ before you knew whether or not you were going to have traction.

Ten years on and there are a ton of VC's and the cost of finding out whether you are right or not is minimal.

So, going forward, what are they key attributes that will determine the success or failure of a VC?

To start with I think you will need access to deals. This hasn't changed in years. Your network will matter more and more - particularly as the opportunity to invest real $'s will be crimped by limited raises necessary.

Second, you will need to be able to evaluate and invest quickly. That means having fewer analysts and more partners - as well as a streamlined decision making process. You will need committed capital ready to go.

Both of these factors are similar to the past - but that is where the similarities end.

In the future I think the number one differentiator will be what else VC's can do for their companies. Not just being a financial partner - which they all are - but can they be a business partner. How can you help accelerate their growth? How can you help them partner with your network to get to cash flow break even and beyond without any additional capital being put it? How many contacts do the VC's have outside of Google or Facebook? Sure these guys are important - but more and more, new companies are having to forge relationships with non-tech companies - and understand these companies and having relationships there are more and more important.

Also, as a GP, can you act as a risk manager. in the public markets, fund managers are constantly measuring risk and reward. For most VC's once they are in - the money is gone and there's no getting out - and the incentives are skewed wildly to staying in a failing investment. Portfolio returns might be a heck of a lot better if VC's understood the concept of risk management. With secondary markets for shares emerging - and the ability to lay off - or add risk - managers should be able to produce far fewer donuts - dramatically adding to the overall fund performance.

Finally, in what may be a strange question, I think you have to ask whether the people coming in for investments are actually good investors. Plenty of people have become angels and have had some moderate success with a small capital base - but have they successfully been able to invest over the last decade? the last 2 decades? Have they been able to invest across the capital structure - recognizing when to invest and when to pull back? Sounds strange - but important questions.

If I'm in the business of investing in VC's those are the points I am going to dig in on.

[Chris Douvos]

@Harry:
It's amazing how little some people pay to the "investing skills" of PE people. Alas, there aren't enough "principals" and too many "agents" (or even dilettantes) for my taste . . .