The Venture Capitalist In The Corner Office

The Warriors' decision to fire Mark Jackson after three successive seasons of improvement in the win-loss category will be debated ad nauseam. Right move? Wrong move? Of course, time will tell: if the Warriors wind up in the Western Conference finals next year, management will look like geniuses.

Rather than pick apart the decision, I'd like to focus on the environment in which it was made. Warriors owner Joe Lacob spent more than 30 years in the venture capital game. He's a partner emeritus at Kleiner Perkins Caufield & Byers, a firm that is among the best-known in the VC world.

Full disclosure: I spent several years covering technology and even waded in the startup company waters myself. I spent a lot of time, both as a reporter and an entrepreneur, around young companies and the people who invest in them.

Here's what I learned: VC's think a lot of themselves. If you bought the PR, you'd think all the wealth of our modern boom times had been created by a few smart guys on Sand Hill Road.  You'd also think they're in the game to create jobs, improve communities and cure society's ills.

The fact is, they're motivated by one thing: ROI. That's business-speak for "return on investment", and it's really the only thing that matters to a VC. Their business model is pretty simple:  round up a lot of investor money, throw it at The Next Big Thing, and hope for a few enormous wins. That's usually achieved with a "liquidity event": an IPO or sale that generates an enormous return for the VC's investors.

Venture capitalists have little interest in actually running a company for the long haul; that's not the way their business works. They have a lot of interest in short-term decision-making aimed at the biggest possible profit. They don't fool around: they put their people on the boards of companies in which they invest, they bring in executives with whom they're comfortable, and they generally get things done their way. Or else.

Another thing you'd think if you believed venture capital PR: they're wildly successful. Well, let's examine that. They certainly do hit home runs for their investors. Everyone can recite the names of VC success stories: Kleiner Perkins can boast of hitting the jackpot on Netscape, Google, and Amazon, among others. But little is said about the deals that go under. Harvard professor Shikhar Ghosh has done some digging and reports a different story: 75% of VC-funded companies go under. And if you broaden the definition of "failure" to mean "didn't meet projected ROI", the number is more like 95%.

Well, then. In Lacob, we have a leading figure from a leading company in an industry that hits it big on 5% of its decisions. In a highly-illuminating discussion with three Bay Area sportswriters, Lacob drew heavily on his venture capital background in explaining why Jackson is out.

He said Jackson "probably needs to do a better job of managing up and sideways", a reference to how the coach handled relations with the Warriors front office. And most tellingly, he referenced his VC philosophy in saying, "there is the right CEO, the right leader for an organization at different phases or stages of its growth cycle."

Leave aside the question of whether a basketball coach is really analogous to a CEO (I would strongly dispute this, but that's how Lacob thinks). What you're left with is the very VC-like belief that nobody can run an organization through various phases. That's why the brilliant mind who launches a company seldom gets to keep the corner office; the investors insist on "adult supervision".

In their pursuit of the big win, venture capitalists set very high bars, because they're not just interested in profit. They need a HUGE profit to support their business model. Thus, it's not surprising to see Lacob tell reporters that "a reasonable expectation" for the Warriors this year would have been a top-4 Western Conference finish. I would argue that Lacob has confused "goal" with "expectation". Was it really "reasonable" to "expect" the Warriors to reach that goal?

Lacob may well succeed in running the Warriors according to his VC model. But if that's his plan, he might want to remember what's at the heart and soul of every one of those companies he and his partners found worthy of an investment: people with passion, energy and ideas. Sports may be a multibillion dollar business, but it's played and coached by human beings, not business plans.