Private Equity and Venture Capital Insight

Lessons from Warren Hellman:

  • Guilty until proven innocent. No investment theory, management hypothesis, or corporate strategy should be accepted simply on the face value. Test all relevant scenarios before acting.
  • Always align interests. Ensure that you, company management, and investors are always working toward the same goal.
  • Have skin in the game. Investors with meaningful capital at risk care more, work harder and get more respect than those with less at stake. Likewise, giving management a stake in the company increases both the desire for profit and fear of failure. Nothing empowers and motivates people like a share in the outcome.
  • Avoid the “good security” fallacy. Invest in companies with strong cash flow that can grow over time. Do not invest just because the security offered seems to promise a good return.  The health and prospects of the underlying business count far more.
  • Listen to your partners and associates. Surround yourself with smart people and listen intently to their views-they often are smarter and often better investors than you. Reward them accordingly.

(The Masters of Private Equity and Venture Capital – Robert A. Finkel)


19 December 2012