The Business of Venture Capital, 3rd Edition

23Management Team Diligence: Assessing the Intangible

OVERVIEW

In the all-time great movie Moneyball, a mediocre baseball team uses a statistical data-driven approach to go on and win 19 consecutive baseball games. At the heart of the movie lies the ability to pick the right team — those baseball players that would have the grit to win. The classical way of picking players involved subjective discussions around their good looks and self-confidence. Their selection criteria included observations like “clean cut, good face, good jaw… he has got the looks — just needs some time.” One player has an ugly girlfriend “means no self-confidence” while another player is so self-confident that “his dick gets in the room two minutes before does.” Committee members were prone to biases and power dynamics within their own selection committee. As one member kicks off the voting by saying, “I like Geronimo,” others quickly agree willingly. “Top of my list” says one. “Real deal,” says another. I am pretty sure this dynamic plays out in most venture firms where the leading partner's views influence the weaker voices in the room.

However, once the teams adopt a statistical approach to picking players, the decision biases become clearer and the winning streak can begin. Such a decision-making process is ideal. “At Foundation Capital, we record the minutes of every opportunity being debated, who raised the risks and challenges — the goal is to see how our decisions pan out, as well as who has the ...