Fall is officially here and for many diehard fans we’re happy to be in the midst of football season once again. For me, it means rooting for the Steelers and trying to get the weekly picks in on time. But for 27 million others, it means fantasy football. I have never quite understood the fantasy football thing since I’ve never created a team myself, but I absolutely love the premise: You can assemble an imaginary team of players and then score points based on their actual performance.
Why bring that up? Well, I was meeting with a couple of GPs recently and it dawned on me that it would be fantastic to be able to create a fantasy VC team. Hopefully this idea will stimulate thoughts about who you would pick to be on such a team. I’m sure many of you have some very definitive ideas. Although I’m not going to name names, my colleagues and I have spent some time discussing how we would construct our very own fantasy VC team as we search for the elusive alpha from the venture capital space over this decade.
We set about the process of creating a fantasy VC team by first considering individual track records. A candidate could be considered for the team if he or she had at least a 2.5x return and at least a dozen deals under his or her belt. If you dig around, there actually are a reasonable number of VCs that fit this bill.
Part of the industry-return problem in real life, of course, is that it is very difficult to find any one firm where every team member has a greater than 2.5x track record, i.e. a team full of consistent, point-producing running backs. Moreover, while an individual may produce a game-changing exit, just like a wide receiver sometimes does, in the context of a fund these wins may not offset the other portfolio losses. But, if you drafted the right fantasy VC team, you could actually build high-returning portfolios.
Ultimately, to build a team, individuals must be drafted to fill various positions. First, we need a quarterback—someone with a strong investment track record who can focus on firm management and will call the plays and facilitate the offense. This person must have the respect and commitment of the other investment partners and communicate effectively with the investor base.
While the quarterback is of central importance, we now need to fill positions in order to complete the team. As historical returns show, one star investor cannot necessarily deliver a winning portfolio. The firm needs the depth of talent (think running back, wide receiver and tight end) who can add distinctive value and realize returns on their investments. These individuals are usually the ones with significant sector expertise and extensive networks. They also are quite often visionaries, with tremendous business acumen and the ability to foresee market trends. These individuals constitute the offense.
The quarterback, wide receivers and tight ends will need assistance with blocking and tackling to drive to the goal line, so we need to pick a strong defense. Here the football analogy also carries well into the venture world. It is the VC’s job, particularly in early stage investing, to work side-by-side with entrepreneurs in building profitable companies, and there is a lot of blocking and tackling that takes place every day to make that happen.
This is where the value of the depth of talent at the firm really comes into play. Just as a football team recruits players with specific skills on the field, our fantasy VC team requires talented investment professionals who can score touchdowns and work closely with entrepreneurs to build shareholder value. While the public markets may sideline our exits from time to time, our fantasy VC team should earn enough points to make it well into the “top quartile” and on to the Super Bowl.
Who would you name to your fantasy VC team? Weigh in below.
Lisa Edgar is a managing director of Paul Capital Investments, a venture capital fund-of-funds manager based in San Francisco. Reach her at [email protected]