Invest in People

Imperial College London recently hosted two conversations with prominent venture capitalists – Danny Rimer from Index Ventures and Michael Eisenberg from Benchmark Capital. Both operate in an industry where detecting an elusive “black swan” is critical and where speed to market is often more important than intellectual property.

Each described an eerily similar investment story.

The first was about an entrepreneur trying to pitch Mr. Eisenberg. This person went through the motions of mailing a presentation and following up… to no response. Instead of more calling/emailing/begging the entrepreneur tracked down two of Mr. Eisenberg’s close business associates using social media. Despite having no previous connection, both were persuaded to contact Benchmark on the entrepreneur’s behalf. I believe the quote was “I wouldn’t have invested if my mother-in-law called, but these guys got my attention.”

In another example, Mr. Rimer described his investment in a London-based online startup. When first arriving at the company’s “office” he quickly realized the space also doubled as the founders’ home. The entrepreneurs were so engrossed in developing their business, work literally took over their lives. Before any product discussions took place, Mr. Rimer was sold by experiencing the entrepreneurs’ extreme level of energy and dedication. The investment ended up being a huge success.

As an MBA candidate at Imperial College, I meet a wide variety of entrepreneurs. Some have already formed a business and some just have an idea. Most ask my opinion about what they should do next. I envision Mr. Eisenberg and Mr. Rimer’s advice would be “If you believe in your idea, stop at nothing until you succeed.” The entrepreneurs in these stories had the drive and focus to realize their vision. The investments were not made on the basis of a business plan, but because of the people involved. I’m told Warren Buffet also shares a similar people-based investment theory.

When raising money, consider what your investor first looks at when making a decision. A speaker recently told me they immediately turn to the financials when evaluating a business plan. This person was big on milestones and 60-page term sheets. Both may be necessary. I think Mr. Rimer and Mr. Eisenberg focus first on people because they realize drive and adaptability are critical factors to success. They assume industries can change. They assume the next ipod/iphone/ipad will emerge. They assume bad things can happen but people persevere.

It’s how entrepreneurs steer their ship when a hurricane hits that makes all the difference.