I have seen a lot of articles published recently on the rise of “enterprise” investing in venture. It’s supposedly back en-vogue! Social media is dead and enterprise and data are where all the investors are going. Personally, I think this is ridiculous. It points to what is exactly wrong with the common media coverage of the venture capital market. What is the next trend? Where is the money going? What exits did best in 2012? These are questions that don’t really have a lot of relevance to most investors. They are simply ways to quantify what is largely unquantifiable. Sure, firms have returns, but these are established in 5-10 year increments, not 1-year increments. A firm might have had a few exits this year and then none next year. Measurement comes at the end of a fund life. I know that’s hard for most investors to grasp, but this asset class is not like a hedge fund or for that matter, not much like Private Equity either. Investing in venture is a bit like buying a great bottle of wine. You can pick the producer, region, even vintage, but when you open it can determine what the experience will be. Funds invest for 2-4 years and then harvest for the next 5-7. A fund is typically 10 years for a reason; it can take this long to create the complete picture. Just like a good Bordeaux!
For large established firms, venture is and always will be a trend-following business; some are leaders, some are followers. Some even try to influence trends with their investment philosophy, making bets across a sector to create markets. They can afford to do so. They have to put all that money somewhere! On the other hand, smaller, more regional or industry focused firms like Cava are very specific in what and where we invest. Our approach has been very simple and aligned from day one; focus on pioneering businesses that have demonstrated some quantifiable customer success in the marketing solutions and software industry, and then be very active and help them grow, any way we can. Simple as that. We believe that the world of marketing is under assault and the companies that are leading the way will dominate the new norm when it settles. Our focus on Enterprise is not because it is trendy or more profitable or has a better chance for success. It is simply because that is what we know best as operators and where we can help a company succeed. So instead of asking what the trend is or which firm ranked first in 2012 exits, ask the principals what they believe in, how they will accomplish it and where they are best poised for success. Not so different than a company in that sense. Bet on the team, their process and how they execute.