Entrepreneurs with passion could hold secret to investing success
Seattle Times technology reporter
"Innovation is a lonely business," said Enrique Godreau, managing director of Voyager Capital, who remembers the days before each. "You have a group of people representing an idea that no one has seen before, that no one understands. Our tendency, as people, is to eliminate those uncertainties."
Godreau calls such people "the antibodies," pesky forces that shoot down the Starbuckses and the Amazons before seeking to understand them. If only there were there an antidote ...
Venture capitalists, executives and business professors always talk about passion, those who embody passion (the Howard Schultzes), the differences between good passion (intense conviction) and bad passion (hubris), and what happens to the dispassionate (the lemonade stand with no customers or — gasp! — no funding).
Imagine, then, if you could measure passion.
Enter Xiao-ping Chen, Suresh Kotha and Xin Yao.
The two University of Washington business professors and doctoral candidate (in that order) are in the midst of a study on passion. They want to know to what degree passion affects an entrepreneur's ability to draw investment funding.
"You see it everywhere," said Yao of passion. "If you have passion: Are you willing to sacrifice things to pursue your passion? Are you willing to let it die?"
So far, they're in the second of three phases.
The first phase was to identify the most common themes and words people identify with passion and boil it down to a survey.
In the second phase, they're showing a series of videos to students in which an actor delivers two actual business plans: 1) with passion, and 2) without.
The participants then fill out a passion survey, rating from 1 (not at all) to 5 (frequently), whether the person did things such as: have eye contact with the audience, lean forward when talking or talk without notes.
At the end of the survey, the participants must decide whether they'd give that person funding.
Assuming they had $1 million to invest, they have to write down how much of that they'd invest in the business.
The third phase involves real investors judging real startups at the UW's annual business-plan competition next month.
Chen said they haven't yet analyzed any of the data. They'll wrap up research in the fall.
Although the results aren't yet clear, investors already have definite views of their own.
The light in the eyes
Tom Simpson, managing partner of Northwest Venture Associates, said it's not possible to know whether a startup will succeed at first sight. And so when he meets a team, he watches to see whether their eyes light up when they deliver their PowerPoint presentation.
Over the years, he's learned not to underestimate an entrepreneur's resolve.
Simpson had the opportunity to be an early investor in a small company called Starbucks. He liked the passion of Howard Schultz but didn't understand how one would make money selling coffee, so he didn't invest.
"I missed and completely discounted all the passion that Howard Schultz had and what he was going to set up and accomplish his goals," he said.
At CoMotion Venture Capital, the management team sees about 1,000 business plans a year. Of those plans, they meet roughly 200 entrepreneurs. Of those, 40 make it to the second meeting.
Of those, roughly two companies receive funding.
Managing partner David Billstrom said a startup in its first year has to close 100 deals. Two may be sales, but the other deals are just as important. It's closing the lease with the landlord, terms with every vendor, funding with the investors and contracts with quality employees.
"There's an exterior version (of passion), which is often called charisma or vision," he said. "But passion is also the mid-level or the bottom-level coding guy working 20-hour days. Some might call that compulsive or insecure, but I think that's passion for your work."
Greg Gottesman, a managing director for Madrona Venture Group, said he can recall one startup where, each time he drove home from work, the office lights were still on. Employees sometimes slept in sleeping bags to meet a deadline. The CEO stayed there along with them.
"You've got to have a leader — and a senior management team — that can get people to follow them into battle," he said. "To work 100-hour weeks if need be, to fight, to scratch and claw their way through. In that kind of context, a leader with passion can make a big difference."
Lost in one's work
Mihaly Csikszentmihalyi, a leading psychologist who has studied such concepts as creativity and innovation, termed the process of losing oneself in work as "flow."
He and a team of researchers interviewed thousands of "experts" from different walks of life: artists, athletes, surgeons — those who spent their time doing something they liked.
The respondents wore an electronic paging device for a week. Each time the device beeped, they were asked to write down their thoughts and how they felt.
The concept of flow — "the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it" — is now studied in many fields.
Simpson of Northwest Venture Associates said he often asks himself whether a person is truly passionate or just a good salesperson. He calls himself a sucker for a good sales pitch.
What's the difference?
"You just spend more time with them and you find out," he said. "The people that are passionate are working around the clock. They're always thinking of new ideas. They're the idea-a-minute sort of people."
What if a startup has a sound business idea, a fantastic team and little to no passion?
"You know what? I wouldn't touch that company with a 10-foot pole," he said. "Heck no."
Monica Soto Ouchi: 206-515-5632 or firstname.lastname@example.org
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