We are at Oracle Park watching the Giants and the Cardinals. It's a gorgeous night in September. On that gorgeous night, my producer and I headed to San Francisco to watch some baseball along with Lars Leki, a venture capitalist at the firm Aspenwood Ventures. I mean, I think one of the things I find fascinating about a game like this is that every single player on the team is somebody who has reached the top of the pyramid of the thing that they do. And and I find I
find those stories of those people fascinating. >> Lars says the players have a rare set of characteristics that you might also see in the founders of a successful startup. >> Take this picture. You know, in his hometown, there were 10 of those pictures and then there's, you know, 50 hometowns across his state. And you know, you sort of add up all the people who had a lot of the same skills, but something about this player got him to go from the local leagues to the state
leagues to the minors to the majors. >> Fortunately, in that moment, he was not doing so well. He just gave up a home run. >> In this game, players were trying to hit the ball over the fence, but more often than not, they swung and missed. That's a lot like what happens in the VC world. >> Yeah, that that's absolutely the way venture capital works. You can only lose one times your money, but you can make five times, 10 times, 20 times, 100 times your money.
>> You need to be willing to lose, you know, your principal many times over on the chance that you get the sort of outsized return winner >> in baseball parl swing swing for the fences and and and go for the the big return. Yeah, >> venture investors place bets on many companies knowing that most of them will fail. >> We call them actually at bats. >> You have enough at bats to have that one or two outliers per fund, but they take longer because of the
way venture capital works. We need to make call it 20 or 25 investments with the hope that you get one that will work. I mean, most of these at bats are going to be strikeouts. That's just sort of the way it it works. >> Go three. Go three. But but none of that matters until you actually, you know, score a home run. >> Giants player just hit a double, slid into second safely. >> Number 19. >> And the Cardinals fan next to us is not happy
about it. >> The Giants won the game that night on two solo home runs. And the Cardinals went home unhappy. Nobody likes losing, but that's part of the game in baseball and in Lars's world. I mean, it's painful, but it's exciting. Everyone would love for you to say, "Okay, I'm going to venture capitalist state. Give me a checklist of the things I need to do, right?" But it the world changes so fast that you need to be constantly revising your model, your thinking because markets are
changing and people are changing and opportunities are changing. So, it is more of a mindset than a checklist. >> And that mindset is the focus of today's episode. how VCs approach the world and how anyone in an organization can apply that thinking. Our guest is Ilia Strebble, professor of private equity and finance at Stanford Graduate School of Business. His book, The Venture Mindset, draws on more than a decade of research to lay out the principles VCs use to make decisions. This first principle home runs meta
strikeouts don't is the first and I would say foundational principle of the venture mindset. It means that smart VCs understand that failures are inevitable. >> This is if then from Stanford GSB where we sit down with faculty and explore how their research deepens our understanding of business and leadership. I'm your host Kevin Cool. I asked Ilia who this book is for. >> First of all, we wrote the book not for venture capitalists even though venture capitalist now assigned this book to all their junior associates, analysts,
newcomers. Not even for founders, even though founders find the book extremely helpful. We did write it for people who are located far away from Silicon Valley, thousands of miles away. And for people whose day-to-day professional job has nothing to do with Silicon Valley, with technology, with startups, there's a reason behind it. There's a deep reason is that our world is changing very fast. It was clear to me when I started thinking about the book back in 2020. It was clear to my co-author and my former
student Alex Dank and me when we started rewriting the book in 2022 2023. But I think it's clear should be clear to everybody now uh given all the changes in AI, robotics, etc. in every single industry that the future is going to be very different and this future requires very different type of decision- making and venture capitalists because they faced with this hostile I would say environment of decision- making for you know 50 plus years they developed what I call the venture mindset >> so we
want to talk today about some of the principles that undergur your research with respect to the venture mindset and to some degree even take it out of the venture capital context because these may be things that are quite applicable across business. And one of those principles that you talk about is home runs matter, strikeouts don't, which is essentially another way of saying go big. Why does that matter so much in the venture world? And talk to us a little bit about in your experience and the
research that you've done, how that is borne out. Well, first of all, I have a confession to make. I don't know much about baseball. Uh, but indeed, we have nine principles in the book, The Venture Mindset. But as we were writing the book, our uh, publishing agent told us, if you guys would like your book to become a bestseller, you must have baseball analogy there. >> Really? And so we did. We named one of our nine principles after baseball. Home runs matter, strikeouts don't. Okay. And
this first principle, home runs matter, strikeouts don't, is the first and I would say foundational principle of the venture mindset. So what this principle really means, it means that smart VCs understand that failures are inevitable. Not only there are inevitable, but they're frequent. >> Mhm. >> Not only they're frequent, but they are expected. If you think about a typical portfolio of early stage venture bets, maybe up to 75% of those bets will fail. >> Mhm. >> And I'm not going to tell you that um venture
capitalists love failure. Nobody likes failure. Okay. But VCs have a different approach to failure. They know that failure is inevitable and the entire business model is based around kind of encouraging failure in a way. Knowing that taking very high risk of a very particular kind and following other principles of the venture mindset will ensure that if you invest enough then some maybe one out of 20, maybe one out of 15 companies in your portfolio will become those home runs. And those home runs will overwhelm all
the unsuccessful failures that you also ended up investing in. >> So that is the first principle. And if you think about traditional business, you should not be following this principle. If you think about the world of incremental innovation where you innovate your product or your service but bit by bit, step by step, you should not be following this principle. But the moment you face the environment of disruption in your industry, when you face unpredictability, not just about competition but about the entire business model of the
industry, when there are a lot of experiments where your business model changes, your customer changes, the relationship with your customer changes. This is where the venture mindset and this principle in particular becomes very very important. >> And it's interesting that you say failure is sort of accepted as part of the process in the venture world because it isn't just that strikeouts don't matter, right? It's that you actually should be striking out a lot if you want to hit the home run, right? >> Absolutely. when we
um look at successful VCs that are kind of more or less by construction have more home runs. >> Mhm. >> In fact, these VCs also have higher failure rate. They have more strikeouts. >> By the way, I did mention that I don't know much about baseball, but I did study baseball statistics as I was writing the book and I can tell you that it's exactly the same true about baseball players. >> That's right. That is baseball players with a very high home run rate, the most
successful baseball players uh in history, they in fact also had a higher strikeout rate. >> That's right. Babe Ruth struck out thousands of times. Yes, absolutely. So, let's just sort of unpack a couple of other of these principles. One of them is in sort of the pathway toward finding that big idea, that home run. You talk about the importance of, as you put it, going outside the four walls to look in unusual places for those ideas and you use actually the example of Burning Man. Now,
you're not necessarily suggesting that everyone go to a hedonistic festival in the desert to find their ideas, but talk a little bit about what you're getting at there. >> So, no, I don't suggest that. In fact, we also give an example of a a Finnish sona festival. Okay. So, I don't suggest that all of us should uh get a flight to to Finland right now. I think it's about getting outside your comfort zone which is more important. Let me give you my personal example how also
I follow this principle myself. Now, like I'm sure many of our listeners, I fly all the time. I travel on business and on pleasure and very often internationally. And I used to travel like a well real professor meaning that I was kind of you know inside myself but now I am think doing this much better much more efficiently. So whenever I travel alone on business my goal is to speak to at least five people and you know this is really interesting it's statistics very similar to
home runs matter strikeouts don't. Now here I might talk for 5 minutes to 25 minutes and very often it's not interesting or it's interesting but nothing important but sometimes on those rare occasions wow this is a part of that principle that VCs smart VCs know how to use >> and presumably having AI as a tool would enable that process in itself. AI is changing absolutely everything. Uh and yet I think the um opposite side of AI is that human connections I think have never been more
important. So how AI is changing. It takes now less than 10 seconds to analyze your LinkedIn connections and produce the entire analysis. Something that in the past would have been done manually or you had to write a code or whatever. um AI made this very very simple. Now obviously uh what is still for you to do is to take an action based on that analysis. Okay. For VCs um I think AI is a double-edged sword. On the one hand it is much easier to find to
analyze data to proceed with the due diligence to find new companies to find new founders. ideas, projects, etc., etc. It's easier to go outside the four walls. However, it also means there is a high competition. In the past, only some people could do it successfully. Uh nowadays, many people can do it and as a result of this, standing out in the crowd has become more difficult. But I also mentioned human connections and I think in the age of AI especially in the world of VC but
also in the world of the venture mindset I think human connection is very important now if you can prove to your counterparty that actually you're a human which is becoming more difficult to do it is I think becoming more important because at the end of the day the most valuable tool we have is our time. So if you can devote even 10 minutes of your personal busy time to somebody else then it is a signal it's a costly signal and I think that's important. You stressed
the importance of saying no a lot now. Is it the mindset? Is it just a matter of sort of disciplining yourself at a certain level? Is it a skill set? Talk a little bit about that. >> I do believe in skill sets. Obviously, I do because I'm a professor and I teach. >> And I think one of the important skills that I'm we're trying to communicate to them and teach them is the power of saying no. >> Mhm. By the way, the power of saying no
as a venture capitalist, as an investor, but also as a founder. And I think that the power of saying no is useful for everybody else. Let me give you a specific examples because it's we see this under different guises. First, when you first see an opportunity, not necessarily an investment opportunity, maybe a hiring opportunity, etc. What is a typical question people ask? Well, why would I invest in this company? Um, should I hire this person for a job? Okay, this is not how VCs approach this
question. Initially, they are operating in what I call the fast lane or the red flag approach. What it means is that they ask exactly the opposite question. There's the mirror question which is why would I not invest in this opportunity? Why would I not hire that person? Why would I not even want to spend another 10 minutes to think about this opportunity? And when you identify any red flags, you just move on to the next one. So this combination of going outside the four walls and
having hundreds if not thousands of opportunities and at the same time asking red flag questions and trying to very efficiently minimize or attenuate the number of opportunities that you would like to consider in a slow lane which is doing the slow due diligence process which is happening anyway faster. >> Mhm. >> Because of developments in AI. So I think that is a very important part of the skill set. >> Yeah. Now sort of an adjunct to that I think is that you've talked about the fact
that when venture capitalists stay up at night thinking about whatever it is they regret. The regrets are not the mistakes they made. The regrets are the companies they didn't invest in that have gone on to 100 or 1,000x what their investment would have been. And we're really talking here about decisionmaking. How does that part of the mindset affect their decision-m? >> Bill Gurley, who is a partner at Benchmark, once said, "If you invest in a company that doesn't work, just fails, you can lose only one
x your money." >> Sure, the money you put in, that's all you lose. >> But if you misinvesting in Google, you lose 10,000x your money. Uh, I think that is the approach of most VCs. If you ask VCs um what are your sleepless nights on it's not about the companies that failed. It's about the investments that you could have made but did not make that definitely affect their decision-m process because whenever they see a founder they're asking themselves really a question is can this founder be
you know the next Jansen Huang or following the red flag uh why can't this founder be the next Jensen Huang okay >> mhm >> and that is another principle of the venture mindset the execution is critically important. There are lots of great ideas around the world. There are not so many people who can execute them really really really well. Uh as a result of this, I think who is going to execute on the idea is important. And again, that is a huge difference between the world
of the venture mindset and the traditional business. In the traditional business, we think about the project, convince ourselves is a great project, and then ask ourselves a question. Oh, so who's going to do it? M >> let's form a team. But in the world of the venture mindset, the team comes first. You can have a great project, but you will not be able to do anything about it if you don't have the right people. >> Yeah. So it can be a fantastic idea, but if the
VCs are looking at a possibility, they are putting more importance on who those founders are and what they're capable of even more than the idea itself. Is that fair? I would say it's fair which is I wouldn't say that VCs would invest in founders if there is nothing else. Uh just because VCs are so excited about the founder they think gosh this founder has nothing right now but we'll come up with something. But I would say that if EC sees a founding team with a great
product, potentially high large market or an interesting technology, but they really dislike the team for whatever reason. >> I think most VCs today would say, "Well, let's try to find somebody else." >> Yeah. >> With a similar idea. Even in my own experience, I can speak to the fact that when I've interviewed people for jobs, sometimes I'm moved by the fact that this is a person I want to work with. This is a person who's on the way up, they're going to be full of ideas.
They're full of energy. I'll find something for them to do, right? >> Uh the answer is yes. Even though when you said I'm looking for a person that I want to work with, sometimes people want to work with people who are easygoing, nice people. >> That's a different thing. >> That's a very different thing. >> Yeah. one very famous VC whom I will not identify uh told me because we were arguing about about factors of success and he told me there's one type of founders I
would never invest in and those are nice people and then he qualified because nice people will have great difficulty firing laying people off >> convincing customers they're the best and so on and so forth Yeah. So, Ilia, we've talked a lot today about all of the advantages that venture capital provides for business development and how the mindset of a venture capitalist can be applied in various ways in very positive ways. I wanted to ask you though to some degree the flip side of that because there
certainly have been venture-backed companies that have exploded that have been terrifically disruptive. So the question I have is is venture capital always good for the world? >> I don't think really anything is always good for the world. There's always the flip side. So the answer is no. Absolutely not. Uh but this is not the way I think we should look at venture capital. We live in the world where there's a lot of competition. Not just among people, not just among uh companies, not just among universities
uh but also among countries and if we are not going to proceed with including venture capital, well somebody else will. >> Yeah, >> I do agree that I think the venture capital industry gives rise to many companies that are disruptive by their nature. >> Yeah. Now this is why I think the venture mindset is critical because I believe that many not just small businesses but many large companies will be displaced and soon unless their leaders realize that they need to change their paradigm how they think
and this is where the venture mindset is particularly helpful. If Then is a podcast from Stanford Graduate School of Business. I'm your host, Kevin Coul. Our show is written and produced by Making Room and the content team at the GSB. Executive producers are Michael McDow and Jim Kan. Sound designed by Mumble Media with video production from Whitney Le, Tatiana Goldman, and H. Ash. Special thanks to GSB alum Lars Leki of Aspenwood Ventures. For more on our faculty and their research, find Stanford GSB online at gsb.stanford.edu
or on social media at stanford gsb. Thanks for listening. We'll be back with another episode soon. >> Get out of here. >> Get out of here. >> No, I don't think that one's coming back. Yeah, there you go. >> I just told him to swing to the fences. So, >> yeah. There you go. There you go.