Jockey or Horse: How One Early-Stage Investor Handicaps a RaceBy Allen H. Kupetz and Dan Lyons*
The views expressed may not reflect the opinions of venVelo’s board or its investors.
Horse racing fans and early-stage investors share a high risk tolerance. Both will likely also argue the key to success: is it the jockey or the horse that matters most? Secretariat probably wins the Triple Crown irrespective of the jockey, but most races – and start-ups – require someone in the saddle with the right skills and passion to win.
Frank Sinatra crooned, “You can’t have one without the other” and no serious fund would invest in an opportunity that didn’t have a strong business and a management team they believed could execute. But rarely do you see the perfect combination of both jockey and horse (perhaps one reason so few businesses get funded). And thus the question remains, jockey or horse?
venVelo has a 13-person board that doubles as its review committee. It reviews pitch decks that come in via the web, through the vast relationship the board members all have, and leads from other funds. The board reviews new venture proposals every week, narrowing the field to about half a dozen quarterly candidates that pitch the board and our broader friends of venVelo (invited guests with domain expertise). venVelo has averaged about four investments per year so if a company makes it to pitch day, it is past the second turn and headed home.
It is at the pitch stage that venVelo asks itself what is the most important ingredient to success: the jockey (the entrepreneur who will lead the way and deliver results) or the horse (the business idea / model).
Much has been written about this question. (For those who want to read more, we recommend David Rose's 2014 book, Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups, and David Maris’ 2012 Forbes article, Bet On The Horse or The Jockey: Investing Lessons From an Italian Horse Race.)
For venVelo, there are a number of requirements for a business to be deemed investable. Does the business solve a real need or problem? Is the market size attractive? Is there unique and powerful competitive advantage? Is the plan realistic, yet aggressive enough to attain significant revenue and profitability in a 3-5 year window? Is there an attractive exit strategy?
Equally as important, venVelo carefully listens to and engages with the entrepreneur who is championing the idea and tries to assess some important characteristics: domain knowledge; a real passion and personal connection to the mission; experience – both successes and failures – that will help to guide the journey; and personal chemistry – is this a person we can trust, who will look for advice and counsel, and who can bring others (investors, employees, and customers) on board along the way.**
These two sets of criteria make venVelo’s bet clear: we look for a great jockey and a great horse. Of course we do. Everyone does. But we don’t often see both together. So if faced with two opportunities – one 60-40 jockey-horse and the other 60-40 horse-jockey – how do we choose?
venVelo’s experience with the companies we have invested in – certainly a small sample – does not clearly support either side of the jockey-horse argument. We have bet on brilliant jockeys almost solely for that reason. This had led to successful companies and those still finding their way. We have also bet on what appear to be fast horses – companies in vertical markets that our collective instincts tell us show great promise. Here too we have found success, but also the need at times to consider (and sometimes demand) management changes.
Because venVelo often invests in very early-stage companies, we probably weigh the jockey more heavily. A leader who listens well, reads the signals from customers and employees, and who seeks and values feedback from a core group of seasoned advisors has an edge in being able to make the strategic pivots so often required. We believe an entrepreneur’s ability and desire to learn, coupled with strategic agility, are characteristics that make the difference between the jockeys who just run the race and those who will win.
Do you agree or disagree? What have your experiences been? Please share your comments.
*The authors are board members of venVelo, a venture fund and business accelerator in Winter Park, Florida focused on early-stage opportunities. Formally launched in 2012, venVelo quickly established itself as one of the most active venture funds in central Florida.
**One of the authors of this article, Allen H. Kupetz, published an article in 2013 titled The Seven Deadly Sins of Early-Stage Funding Requests that discusses venVelo’s investment criteria in more detail.