Venturing a Guess on Human Capital

 -  8/9/10

A new report aims to begin to analyze the characteristics of the entrepreneurs that receive startup funding.

Some of today’s largest companies have their roots in small startups. Until now, little statistical data has been available about the men and women who founded them. A new report aims to deliver insight into the human capital behind these entrepreneurial companies.

“There’s lots of ideas around what it takes to get venture backing, but a lot those things are hard to quantify or do any sort of statistical analysis of because you can’t measure tenacity, you can’t measure your ability to pitch to an investor,” said Anand Sanwal, CEO and co-founder of CB Insights, an information services firm based in New York that tracks and analyzes venture capital activity.

When entrepreneurs seek funding to turn an idea into reality or monetize a new product, they often turn to venture capital to get a boost. CB Insights’ recent “Venture Capital Human Capital Report,” released in two parts in August, provides information about the people who receive venture funding.

“There’s lots of entrepreneurs who are probably pitching similar ideas, and so what is the distinguishing feature between those entrepreneurs? It comes down to the person behind the idea,” Sanwal said.

Venture capital firms typically provide funding to small companies that may be seen as too risky for traditional financing. Some of the economy’s biggest names received an initial boost from venture capital firms, and many continue to receive funding and support. Companies such as Intel, Microsoft, Facebook, Google and Twitter, among others, broke through in part due to this type of financial support.

While a great idea is what often gets the headlines and the dollars to make it happen, an often underanalyzed but important component of what venture capital firms invest in is the company’s human capital.

“There’s this adage in the industry that you bet on the jockey, not the horse,” Sanwal said. “They always mention it’s all about the team. It’s not just the idea, but it’s about the people who have brought the idea.”

Sanwal said venture capitalists typically look at three dimensions when sizing up an investment: market, momentum and management. While market opportunity can generally be quantified and the momentum of a company can be tracked and plotted, management has been harder to quantify but just as essential as a novel idea or product.

Article Keywords:   mentoring   technology  

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