Horse or Jockey?

There is much discussion in the venture business about whether you back the horse or the jockey. Some, like Don Valentine at Sequoia, state they look for large growing markets and find the team later. More frequently, you hear VC's saying that the business is about people, people, people.  In the end, I would argue (conveniently) that it is both. Market readiness makes heroes and fools out of investors (right concept, wrong decade). If the market/customer base is not ready to adopt a technology or solution, for whatever reason, even the best management team will be unable to win. That said, management teams are critical to success in the race. Often, when the market is ready, the trophy normally goes to the team that out-executes the rest. Just look at Google versus Alta Vista, Ask Jeeves and Inktomi. Of these two, market (horse) has the greatest macro impact but management (jockey) has the greatest micro impact.

Warren Buffett, the largest cheerleader for backing good managers, once said however:
“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

Along this line, Prof Steve Kaplan, from the University of Chicago, recently gave a great presentation at the IVCA annual lunch about Horse vs. Jockey, including some fascinating statistics and analysis. He clearly comes down on the Horse side of the arguement.  I highly recommend reading the attached PPT file of it. Download kaplan_horse_jockey_april_2006.pdf