Investing smartly in the region’s high tech

New technology industries and paradigms are springup up by the day in the D.C. region, but it seems like a difficult gamble to know which investments will pay off and which will fizzle out. To better understand the ever-changing world of high-tech investment, we spoke with Jim Hunt, managing partner at Lavrock Ventures and co-founder of Blue Ventures, both prominent venture capital funds operating in the D.C. region with a focus on new technology.

ABERMAN: From your perspective, as a VC, what do you think of this statement? I’ve heard this off: VCs will tell me that they bet the jockey, not the horse. What do they mean by that?

HUNT: I think that VCs with much experience in the business probably find that the team itself is more important than the actual concept of the business. It’s fair to say that almost every concept you can think about has probably been thought of before. And it’s really all about execution of that concept and model. A quality team will both understand how to get to market efficiently with capital of mine, or anybody else’s, and they will be able to draw into their team as they build it the right kind of talent to drive the company forward.

ABERMAN: Yeah, my experiences is that I have seen really great teams overcome a lousy idea, and I’ve seen really, really bad entrepreneurs screw up the most amazing concepts. I agree with that. As you look, therefore, for a leadership team over the idea, what kind of qualities do you think are most important for a leadership team to have, from your perspective as an investor, and then also, you could do that as a former CEO and growing organizations. I want to get your perspective from that direction as well, but let’s start with the investor perspective.

HUNT: Yes. I think the first thing that I look at, and frankly, this can just dispel me from moving forward with the possible opportunity, is looking at the arrogance of the founder. That can be technical arrogance, it could be market related arrogance, but my view isn’t really that that arrogance will prevent the CEO or the founder in listening to me as an investor, but I worry more that they won’t be able to build a quality team around them, and that they won’t listen to the market.

It’s all about understanding the market, being able to pivot to the market, and really quality listening CEOs will figure out how to do that effectively.

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ABERMAN: It’s interesting that you frame it that way, because don’t you have to be arrogant in some ways to have the guts to start a business?

HUNT: You have to be confident, that’s for sure, and it’s a delicate balance between having the stayability to really drive the concept forward, realizing that there’ll be plenty of bumps in the road. Any startup will see bumps in the road. If the CEO’s not dedicated to making it work, and frankly confident in his ideas, or her ideas, I don’t think it works. On the other hand, if they go over the top, with not listening to people, not being able to build a team, and really, too much arrogance doesn’t work.

ABERMAN: Sounds like you’re talking about self-awareness and empathy as being primary characters.

HUNT: I think that’s a really good way to put it.

ABERMAN: Turning your attention to your prior experience, you have successfully grown as a founder and CEO of various businesses. What qualities did you find most useful to you as a CEO?

HUNT: You know, there’s a great book out that, now that I’m an investor, I talk to my CEOs about reading, called The Five Temptations of a CEO. And when I read that book, I found certain faults that I had with respect to management style, listening, et cetera, that were very important for me to work on, and they include things like placing yourself as a CEO above the company, not looking at it from a standpoint of what is good for the company. Encouraging harmony, not conflict.

You really need your subordinates, your vice presidents and others, to not be afraid to tell you if they think there’s something they just disagree with you on, and there’s a number of other attributes that are important. Those are two of the important ones.

ABERMAN: It really does sounds to me, as you’ve described it, that ultimately, selecting a team is really, it’s look and feel, a touch thing. It’s interesting to me, many people think that investors look at things by the numbers, but what you’ve just described to me, this is much more assessing people on their soft skills.

HUNT: Frequently, their effectiveness as managers are reflected in the numbers, pretty acutely. So, you can see it there, but really trying to get an understanding of the balance of the team. So, CEOs or founders have to realize what they’re not going to be good at, and they have to surround themselves with people frankly, in my view, stronger than they are in those given disciplines. If they fail to do it, you really don’t wind up with the right balance on the team, and probably you’re going to be less effective moving forward.

ABERMAN: Very helpful advice, and I’m sure many of our listeners appreciate hearing it from you. You’re currently investing in the market. What’s your opinion of the current marketplace for venture and angel funding?

HUNT: Jonathan, I’ll answer that from a regional perspective first. Certainly the ecosystem for venture, and for early stage funding, the epicenter is Silicon Valley, but there’s really interesting niches around the country. So, for example, if you’re looking at a consumer products play, it’s probably New York, certainly the Valley as well. Where we’re extraordinarily strong, I think, is in two real areas: one is cyber. There’s just so much cyber talent in this region, that even the Valley will tell you that we are probably stronger than they are. And the second that I would point to is data analytics, and the things that surround data analytics. In this region, those are two very interesting focus areas.

ABERMAN: I have to ask you: what’s the technology area that you’re most excited about right now?

HUNT: You know, there’s two. There’s cyber, but I would say niche cyber. In other words, I don’t want broad-brush cyber. There’s too many companies in that space, but niche cyber is interesting, in particular because the threat vectors change all the time. And the secondary area that’s interesting to me is open source data, which is an area that it is also fairly pronounced here, and an area that I’m pretty focused on.

ABERMAN: Jim, I want to thank you very much on behalf of our listeners for coming and sharing your experience today. It was incredibly helpful.

HUNT: Thank you, Jonathan, it’s been a pleasure.

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