By Yusuf Ozdalga, London Partner, QED Investors
The animated Pixar movie Ratatouille depicts the adventures of a rat following its life passion of becoming a Parisian chef against all odds. In the finale of the movie there is a memorable monologue where the snobby and hard to please food critic Anton Ego (as voiced by Peter O’Toole) finally comes to his senses and realizes the true meaning of his own labor, triggered by discovering that the sublimely delicious meal he just savored was in fact prepared by a rat.
“In many ways, the work of a critic is easy. We risk very little yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face, is that in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so. But there are times when a critic truly risks something, and that is in the discovery and defense of the new. The world is often unkind to new talent, new creations. The new needs friends.”
Watching this, I could not help but to draw parallels with the work I do as a venture capital investor in early stage companies.
As VC investors, we see and listen to hundreds, if not thousands, of founders presenting their business ideas to us each year. By design, we cannot invest in all of these ideas and invariably find ourselves in the position of saying no to the vast majority of founders that cross our paths. Unlike Anton Ego, I should like to think that the overwhelming majority of VCs do not thrive on negative criticism – in fact saying no is probably one of the hardest part of the job.
Nonetheless, we have to engage in some sort of critical thinking during the process of reaching our decisions, and no matter how nicely we try to deliver our message or how thick skinned the founders (as they indeed very much are, or if not, inevitably become over time), the act of saying no is hard on both sides.
But as Anton Ego points out, in the grander scheme of things, the blood, sweat and tears that founders and early employees sacrifice on the road to success are infinitely more meaningful than the work we do and the judgment we pass as venture capitalists. Compared to what it takes to get a new idea off the ground, coming up with a yes or no decision on a particular funding round feels insignificant indeed.
Of course, as VCs we in practice do a lot to help the process of innovation and creation. Beyond the capital that we put behind entrepreneurs, we spend time helping refine ideas, act as connectors, cheerleaders, coaches, and in the best of cases we roll up our sleeves and act as co-creators or even (dare I say) co-founders.
However, there is indeed that one time where we as VCs can make a truly significant difference, and that is when we go out on a limb and risk not just our capital, but also our reputation, track record, or career on an idea that is truly new, truly disruptive, truly innovative.
Believe it or not, this does not happen as often as one might expect from looking at the venture ecosystem from the outside. There are trends, topics and themes that become “hot” and many end up chasing the latest flavor of the month, flocking like moths to a flame while disregarding other less obvious ideas.
And as much as venture capital should be about taking risks, it is only human nature that investors look to offset those risks. Ideally this is just wise risk mitigation – however taken to an extreme, this can lead to a certain kind of conformism in the VC world, and sap they system of true innovation.
Hence, a VC really comes into their own when they are willing to make a leap of conviction as well as faith to take a risk alongside the founder, not knowing exactly where the road will lead, but believing they will figure it out together.
The world is often unkind to new creations. The new needs friends, and venture capitalists become their best self by becoming that friend.