Last week, Kobe Bryant announced that he and partner Jeff Stibel were launching a $100 million venture capital fund. The story gained prominent press coverage because of the involvement of a celebrated athlete, who just retired after the National Basketball Association’s most recent season, but there are other reasons for private equity investors to sit up and take notice of this news.
From superstar to rookie
In basketball, Bryant was a perennial all-star who won multiple championships. In venture capital, he has no such track record – he is, in effect, a rookie in this field. However, he is doing a smart thing in hooking up with a partner who knows his way around venture capital.
As a former player for the Los Angeles Lakers, Bryant was known as The Black Mamba for his penchant for cold-bloodedly hitting clutch shots. In crunch time, he insisted on having the ball in his hands, but that same kind of assertiveness that makes many athletes successful during game time is often dangerous when they pursue business ventures.
Being able to distinguish a sustainable business model from a trendy buzz, understanding whether there is sufficient cash flow to see a start-up through to profitability, and being able to make deals on favorable terms are all complex processes. Working alongside an experienced venture capital professional is a good move to hopefully spare Bryant’s fund from costly rookie mistakes.
Beyond that, there are some other insights to take from the formation of this fund. A big name like Bryant’s can be very helpful in opening doors – it’s hard to imagine that too many people would refuse to at least listen to his pitch.
More broadly, Bryant’s interest in venture capital, as opposed to just having his millions invested passively, is an example of how private investments can be so much more appealing than public ones. Athletes, like Bryant, are always seeking an edge. Similarly, the access to information, private market valuations, and opportunity to influence strategy that comes with private equity investments all appeal to people whose nature it is to seek a competitive advantage.
That’s nice for Kobe, but...
Bryant’s venture capital fund is not yet seeking outside investors, but at some point that would seem a natural step in its evolution. While Bryant’s approach may be fine for his needs, investing in a fund like his is not necessarily the right move for people who are interested in venture capital.
For one thing, a big-name front man might be useful for opening doors, but it can also be a distraction. A fund’s success or failure depends on its fundamental investment strategy and the deal-making talent behind it, not on the celebrity of its lead investor. Also, high-profile management can often be costly, adding to a fund’s expenses.
In any case, while investing in venture capital via a fund is one way to get exposure to the asset class, it does take away some of the more appealing aspects of private market investments. Being once removed from detailed information about the companies they invest in and not being in a direct position to influence management are aspects of investing via a fund that might be especially off-putting to people who are used to applying their entrepreneurial talents to investment opportunities.
Seeking guidance without ceding control
Looking at the positives and negatives of Kobe Bryant’s venture capital approach underscores why people find an organization like TIGER 21 so helpful to their investment activities. As noted previously, one of the smart things about Bryant’s approach to venture capital is that he is receiving advice from a seasoned professional. In a different way, TIGER 21 facilitates access to expert advice by allowing successful people to seek perspectives from their peers. This can be especially helpful when entrepreneurs want to branch out into fields that are new to them. Good business principles should apply across different industries, but it is always helpful to get guidance from someone who knows the ins and outs of a particular field.
The peer-to-peer approach is a unique way to gain advantage when developing a venture capital fund like Bryant’s or any other managed investment approach. It allows the investor to seek guidance without giving up control of the decision-making process. After all, like Bryant, successful business people are used to having the ball in their hands when it matters most – the last thing they want to do is pass off the responsibility to someone else.
President & CEO of TIGER 21