A venture capitalist, particularly one investing at the earliest stages, must be comfortable taking risk, and in doing so, trusting the unknown. In the course of venture investing, as in life, it’s impossible to know every challenge that lurks around the corner. There’s always some element of a leap of faith, and sensing when to take that leap and when to avoid doing so means the difference between success and failure. A little more than a month ago, I took a leap of faith in getting married. We dated for a few years and during that time, we both gathered enough data to feel good about the decision to “invest” in each other, but there are surely lots of unknowns that lie ahead. The courtship process was largely an exercise is gaining comfort with those unknowns. In the venture business, we don’t typically have years to gain comfort before making a decision to invest. We sometimes know an entrepreneur from their previous work, but just as often, the relationship is new and we have a few months, at most, to form impressions and make a decision.
Recently, I’ve been thinking a lot about the unknown as it relates to investing. Over the past two years, I’ve led four investments with SoftBank Capital and been involved in many more. The vast majority of those businesses were ones which I was able to wrap my head around and get a fairly clear assessment of the opportunities and probable challenges, either because I had some pre-existing knowledge of the category or because of some familiarity with the business models themselves. Each of these companies has an opportunity to grow into big businesses and several are well on their way, but from an investment point of view, none required huge leaps of faith on my part, at least related to the core business. It feels to me that the biggest swings of the bat and outsized return potential in venture often involve some element of the unknown and the fundamental question ‘will they be able to pull this off?’ In these situations, revenue models often remain unclear and market forces driven by incumbents can seem audacious, but there’s a general sense that something special is at hand and if they figure it out, they’ll be sitting on a treasure chest. As in baseball, when you swing for the fences, you often strike out, but every so often, you make solid contact.
As I get ready to begin my third year in this business, I’m feeling more and more comfortable with the unknown and willing to take more leaps of faith in founders working on big hairy audacious projects that are borderline impossible. Under the right circumstances and with a little bit of luck, they’ll be massive.