“How are you de-risking?”
John Cunningham '21 | Westfield, NJ Major | Computer Science & Business
Minor | Entrepreneurship
(1) Open up Spotify. (2) Go through the "Top Hits" Playlist.
You may have heard some of the songs before, some of them are a fresh take, and some of them are completely new. But what is the kind of song that you are going to be humming an hour from now? It is the song, of course, that resonates with you.
On Thursday and Friday, we heard from people with all different kinds of early-stage venture capital investment perspectives. We heard from former entrepreneurs turned investors, like Nicola Corzine and Joe Blair. We heard the perspective of a CFO from Keith Janosky. We even heard contrarian opinions about the current state of VC from Paul Martino. Because of the different perspectives that these speakers brought, I expected them to have little in common. This was mostly true, but there was something that everyone wholeheartedly agreed with.
The question that VCs always think about is: “How are you de-risking?”
Whenever making an investment, the two most basic factors to consider are return and risk. VCs are different from bonds in the sense that neither the return nor the risk is clearly defined, and both factors change with time. Naturally, VCs want the ratio of reward/risk to improve. What stuck with me was their collective focus on the risk. They all agreed that, generally, the correct way to run a VC backed business is to always work on what will decrease your business' risk the most - right now.
It stuck with me because we make uncertain bets all the time in our careers, personal lives, etc. One might, for example, bet that going to San Francisco over winter break and hearing from speakers across Silicon Valley might be a good investment. While it can often be hard to know the reward before we make a bet, we can always keep reducing the risk. We can always research, test our assumptions, prototype, get feedback from others, etc.
That was what I was thinking about on the bus ride home on Friday, and it will be what I’ll be thinking about well beyond this trip.