Eric Ball

Although there are many lessons my parents imparted that did not stick as well as they might have hoped, one element that did imprint on me is the critical value of education. I took adult education even in middle school, learning how to fix a car and how to dance. When I determined that I would not teach but rather go into management, it surprised no one that I pursued not just an MBA but a doctorate in management, and later wrote a book about it.

I was attracted to venture by the fact that it remains an inefficient market, where hard work is rewarded and (unlike in publicly traded markets) inside information is not only allowed but used to generate above-average returns. Venture also takes advantage of the power law (that is, there is no limit to the upside multiple you can earn on a single investment, but you can’t lose more than 1x). To train, even in a corporate job I spent weekends with legendary venture investor Don Lucas, and completed the Kauffman Fellows venture program.

Since co-founding Impact VC, I’ve learned that venture investing is not all about education and training and analysis. In early-stage investing, there is always a shortage of relevant data, and the exercise becomes that of an artist as much as of a scientist. One needs data and discipline, but also to appreciate the role of team dynamics, serendipity, and path dependence. That is, you will constantly have negative and positive surprises and the ability to react becomes as important as the ability to plan. I’ve also learned that it is not simply learning that is key, but organizational learning. If you learn how to be a great venture investor, that won’t matter one day after you retire or get hit by the proverbial bus. Building a lasting firm requires that everyone on the team learn from each other’s experiences.

To win a horse race, you need a jockey and a horse. Analysis begins with the horse. What is the market, who else is in it, why are you uniquely positioned to outperform these other presumably smart people? In short, how good can the best-case scenario become?

A good team cannot rescue a poor business model, but an underperforming team will always sabotage even the best model (despite Warren Buffett’s admonition that “a good business is one your idiot nephew could run”). What is the CEO good at, and what is she not good at? How does the rest of the team complement the CEO and each other? Diversity in experience, background, and viewpoints is key. A good team needs a balance of those who know how to be a larger company and those who understand that small companies are always beset by existential challenges. MIT Professor Edgar Schein tells us that a company’s culture is simply “those assumptions that go without saying” and that the first role of a founder-CEO is to establish those shared basic assumptions that bind together the actions of everyone in the organization. A CEO navigates the tension between passion and staying calm, constancy and orientation to action, confidence, and humility.

We enter 2023 in a challenging economy, and many are decrying the death of venture. History shows otherwise, with the best vintage years for early-stage venture investment coming 1-2 years after prior crises (in 1987, 2001, 2008). I believe this is the best time to be in venture. In a world where policymakers are unable to come together to improve outcomes, technology will continue to be a force for positive change for states, businesses, and consumers. There is no better time to be a part of that disruptive change.