Forget that old saying, “Those who can, do. Those who can’t, teach.” Sean Foote is one of many Berkeley Haas teachers who excel at doing and teaching. Indeed, he knows that teaching classes in venture capital and private equity makes him a better investor, most recently as co-founder and managing director of Transform Capital. Foote also advises corporations on establishing and managing their corporate VC businesses. Previously, at Labrador Ventures, an early-stage technology venture firm, he participated in investments in firms like Hotmail, Pandora, and RocketFuel.
How do you teach a subject like Venture Capital and Private Equity?
I get asked that a lot, but usually the question is framed more like: “Aren’t all VCs just greedy, egotistical people? How do you teach that?”
Of course, we aren’t, and that’s not what we teach. We teach how to value a company, how to understand the terms of a company. These are things that most people don’t do well enough, things that can lead to multi-million-dollar losses if you get them wrong.
Picking companies is the least important thing we can teach. Most MBA students are already trained on opportunity recognition: Do the numbers make sense? What is the market? What we teach is the difference between recognizing an opportunity and recognizing an investment.
Mostly we strive to teach, and model, partnership. The ability to function in a partnership is vital in VC. Most VC firms are not hierarchical. To be effective, you need to be able to interact firmly, fairly, and genuinely to achieve an objective. The class is one big partnership, and the students form smaller partnerships among themselves.
Do the partnerships make investments?
No, because we don’t have capital. If anyone wants us to give us capital, I’m on LinkedIn!
We encourage and teach a VC mindset. We use the internal documents and workings of a list of private companies that have given us permission to share.
Here’s an example of VC mindset: The media celebrate unicorn companies that are raising, say, $200 million at a $1 billion valuation. As a VC, my reaction to that news is not fawning over the valuation, it’s wanting to know why they need to raise $200 million. If the company could have grown without that money, the earlier investors would have made more money.
I’m much more interested in what could be called “bamboo” companies. Bamboo is the fastest growing plant on earth. Bamboo persists through drought, flood, locusts. A company that needs few resources, is tenacious and grows fast—If that’s not the definition of what a successful start-up should be, I don’t know what is. We should celebrate bamboo companies, not unicorns.
How do you bring the VC mindset into the classroom?
We also bring in speakers from super-successful brand names in VC, like Andreessen Horowitz, Bessemer, and NEA. We also engage with VC firms that are taking a different approach to VC, like Precursor, Autotech Ventures, and Quora.
The best way to know your business is to teach your business."
Who takes your class? Entrepreneurs? Bankers?
Certainly, we get entrepreneurs who want to learn how the other side—VCs—think. And we have a share of people who want to work in VC. There also are a lot of people who take the class because they find themselves at the epicenter of the most transformative form of investment in the last 20 years—Silicon Valley—and figure they should learn about that while they are here.
But, in my opinion, learning this stuff is important no matter your job. Corporations, nonprofits, government agencies all have to face the challenge of fostering innovation and creating change that lasts. There’s a whole shelf of books devoted to innovation in the two remaining bookstores in the United States, and I can boil all of them down to “emulate the VC industry.”
Like a VC, CEOs and managers need to figure out how to allocate resources to foster innovation even if the failure rate is high. How do you make it acceptable in a multinational company or government agency to fail a lot, to take risk?
Imagine a company trying to develop a new widget. The company has the choice to put 50 people on a single team pursuing a single idea, or to field 10 teams of five people looking at 10 different solutions. Which approach is most likely to uncover the best innovation?
What are the rewards of teaching?
The best way to know your business is to teach your business. When else would I have the chance to sit back and think deeply about where my industry is headed?
Teaching also makes me a better investor, again because I am thinking about what I do and how to explain it.
I teach because people fascinate me. The amazing and the awful exists in every person, and we all struggle to be the best elixir that comes from that messy brew. There are 72 students in our class, and I know everyone’s name. Knowing someone’s name is the basis to making a relationship human.
And selfishly, I like a stage. Growing up I was on the debate team. I was in every play and musical. Teaching is also performing.
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