MY BIG MISTAKE was in doing deals for the sake of doing them. It was in the 1980s after I had sold my New York company, Interactive Market Systems, to VNU, the Dutch- owned publisher. I had looked forward to a change from 'doing' to 'helping'.
I set out to make active investments and give advice to a number of companies. But those I chose were small and absorbed a disproportionate amount of my time. I found myself back doing rather than helping. And the failure rate was high.
I should have involved myself with fewer and larger opportunities where the potential return on my time and investment would have been more rewarding. And larger investments would have made me exercise more diligence.
I lost over two years in developing my career in venture capital investment. Yet I did learn from the experiences. I learned not to spread myself too thin, but rather to have a small number of carefully researched and significant investments - and to watch them closely.
The experience led me to develop my 'three C's plus I' rule in judging whether to put capital into a venture.
First, the Concept: Is it commercially sound and well researched. Does it make sense to me? And do I want to be in this business?
Second, does the entrepreneur have Commercial sense? (Or street smarts?)
Third, does the entrepreneur have Character. By this I mean the fortitude to cope with stress and the guts to work through difficult times?
Finally, and most important, Integrity? Can I trust this person at all times? If there is the slightest question, I walk away, even if a venture is a star on the three-C scale.
Also, before deciding to put in venture capital one should ask one's self, 'What's the management team like?' I find that small companies often do not have complete management teams. There is a good chance, if you are the only or the principal investor, you will have to help sort out the resulting problems. So, be prepared to get more involved in the business than you planned - especially if it hits hard times.
In one challenging case it has taken two years and a substantial amount of new capital to get the company on its feet and trading profitably. As an investor, be certain you are ready to make the commitment, or to find someone to do the job. Or be prepared to walk away with a loss.
Don't expect a quick return, no matter how compelling the business plan. Remember, an entrepreneur must be optimistic. Three to five years is the usual wait for returns. And even when a business trades profitably, it may not be possible to pay dividends or directors' fees. The money may be needed for growth. Indeed, be prepared to lose your investment. Venture capital is true risk. As you write the cheque, remember you are probably betting a long shot.
But, if you have the right person or team, with the right Concept, Commercial sense, Character and Integrity, it can pay off.
I must say, I have been extraordinarily lucky. I enjoy the business of business. And after making my mistakes and learning my lessons I am involved with growing software and business information companies, which are staffed and led by bright, committed, challenging people.
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