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| Home - Venture Profile - May 05 Issue |
Venture Profile: Jim Gauer, Palomar Ventures
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Angel Mehta: Based on what you’ve told me… are you less likely to get involved with a CEO, or an entrepreneur, who has a mercenary approach?
Jim Gauer: I think being a mercenary – that is, trying to build a company for the purpose of money - can certainly be part of the spirit and it’s not a negative. What I look for is a combination of people who are mercenary, and those whose primary motivation tends to be an attitude of making their vision real in the world.
Things tend to go wrong when they are only interested in their own vision and have a tendency to be willing to go down in flames, not making it real, but sticking to their vision. But things also go wrong when they are so mercenary that they’re at the whim of customer requests in the short-term and willing to do anything for short-term revenue.
Angel Mehta: Got it. So you need both. No wonder it’s so hard to find great entrepreneurs…
Jim Gauer: Exactly. What you need are people who conduct a dialogue with the market that allows them to understand. They hear what the market needs. They may have to lead the market in telling them what they need, they’re not going to be overly influenced by customers but are going to be in a dialogue with customers. Follow what the customers say slavishly and you’re dead. Follow your own vision slavishly and you’re dead. Put the two together in dialectic and you have success.
Angel Mehta: Why do the typical skill sets of entrepreneurs not match those needed to make them good managers? What do they need to be successful?
Jim Gauer: Entrepreneurs, by their nature, are often not good listeners. They’re bull-headed. In order to be an entrepreneur you need, to a certain extent, to be willing to tune the world out and just say I’m going to go do this no matter what anybody says. But to get really successful, you have to be able to hear what people are saying, not only internal management people, but also what the market is saying and be able to put those together into true leadership.
A typical entrepreneur is not a great leader. The exceptions to that are all well-known people… but what you find in every one of the exceptions is that they turn out, in addition to having that intense optimism of the will that you need to be an entrepreneur, to be very good listeners. I’d maybe even round that formula out a bit. We look for the leadership of a company to have a combination of skills which we call ‘pessimism of the intellect; optimism of the will’.
The pessimism of the intellect side is that constant questioning: what are we doing? Why are we doing it? Where is the market for this? Why do we believe this can be a big opportunity? What do the customers think about what we are doing? A constant pessimism about the project itself combined with an optimism of the will. We’re going to do this. We’re going to execute on this.
If you can find those two things in balance, you have an entrepreneur who’s a great leader, who’s a great CEO or manager for the initial stages, at least, of getting a company launched to the stage of escape velocity, which is the key period.
Angel Mehta: George Bernard Shaw’s comment comes to mind… ’reasonable men adapt to the world around them; unreasonable men demand the world adapt to them and therefore all progress is made by unreasonable men.’ Do you think that comment is maybe unreflective of statistical reality and maybe more reflective of the exceptions?
Jim Gauer: Well, I actually think that what Shaw needs to do is to take it one step further, which is to combine the two: to take the reasonable and unreasonable man and combine him into one being. That’s the pessimism of the intellect; optimism of the will. It’s the willingness to impose things on the world, while at the same time adapting to what the world is telling them. Not allowing the world to dominate the vision and not allowing the vision to try to dominate the course of the company.
Angel Mehta: What is more important: picking hot markets, or picking great people?
Jim Gauer: In my early days as a venture investor I believed in the markets and made compromises on the quality of the people that I was backing to go after those markets. I quickly learned that I had absolutely no success when I had a combination of a great market and a group of self-defeating humans. So now my tendency is to back the people who have a complex set of traits that seem to correlate with success and assume that we’ll work our way into the markets even if we don’t initially understand the market.
I might even go further and say that if we understand the market, and there’s already a name to the space, it’s probably too late. There’s so much money in the venture system and so many smart people in the business that by the time a space has been named and defined as important, you’re too late.
Angel Mehta: How much attention should an entrepreneur pay to the brand of a venture firm when deciding whether to accept financing or not?
Jim Gauer: There are good investors and bad investors underneath any brand name and always what you’re looking for is people you can work with that share a set of attitudes about company-building - primarily patience, to be honest - and a belief that it’s not raw revenue numbers that determine the ultimate value that gets built but the quality of revenue, the replicability, the ability to identify a problem space that is broad and has reached across a variety of verticals. That kind of quality can be found in any fund irrespective of brand and it can also be missing irrespective of brand.
Jim Gauer is a founding partner of Palomar Ventures with expertise in the telecommunications and software industries. Jim combines strong technical and management background with a solid record as an investment professional to guide and oversee the investment strategy for the fund. For article feedback, you can contact Jim at: jgauer@palomarventures.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
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