The mindset of venture capitalists can be applied to business owners, says Ilya Strebulaev, a finance professor at Stanford Graduate School of Business who has spent many years studying the VC industry.
In Strebulaev’s book The Venture Mindset, the academic pinpoints what he has learned from VCs, and their approach to business and decisions in which companies to invest in.
“Venture capitalists are probably having a major impact on your life every single day. VCs are people who invest in small, risky, high-growth startups, and they often invest in companies that are trying to change our world.
“Think about Google, Microsoft, Facebook, Zoom. Many other tech giants, they were all funded by VCs back when they were very small companies. My team and I tracked the successful Covid vaccines and found about half are delivered by companies supported by venture capital, and even though it’s in the news a lot more during tech booms, this powerful sector of the economy predates the internet.”
A venture capitalist mindset works for business owners
How can a business idea make it through to a VC deal? Strebulaev and his team spoke to nearly 900 venture capitalists about their decision making. He found that VCs concentrate on what Strebulaev calls the jockey rather than the horse. What he means is that the human component is vital. VCs will bank on and invest in a good jockey to ride and steer the horse to victory.
Rather than a mindset which looks to avoid failure, VCs succeed by making a variety of bets, making sure that a handful of large successes can cover the losses. “‘Home runs matter; strikeouts don’t’ is the first, and I would say foundational, principle of the venture mindset,” Strebulaev explains.
Thinking like a VC can benefit business owners. Many people tend to be very risk averse as are decision makers in a company. However, the VC mindset is open to trying something new and being ready to take the risk to fail as well as staying flexibile and adaptable to changes in fortune.
Strebulaev says VCs have much to teach business owners such as embarking in research in the markets before making decisions, experimenting and lateral thinking.
“That’s how you win in big business, and the same is true in life,” says Strebulaev.
