There is no such thing as safe.
The author and his old friend, Norbert “Noppa” Joos, the great Mountain Guide of the Grabunden region of Switzerland, after a ski tour together on the Piz Palu in the Engadine Valley near San Moritz in 2007. In June, 2016, Noppa died guiding his clients on the Piz Bernina, a route he had guided many times in his career.
Venture capitalists and mountain guides are risk managers. They use their experience and talent to bring order and success to an otherwise chaotic and dangerous endeavor. They do not, as a rule, manage people and to be truthful, they tend not to be very good at it. Instead, they embark on a plan with input from others, manage the situation as it evolves, and strive to deliver the best possible outcome available to the participants under the circumstances.
On some days, that’s the summit; on others, it’s failure and a long walk home.
In every effort, luck and timing play a major role for both guides and VCs. The best entrepreneur, surrounded by seasoned management, financed by top-tier firms, and laser focused on a fast growing market with a best and first in class product can fail utterly — it happens to us all, with depressing regularity.
The most experienced guide, leading a longtime client into his terrain with perfect conditions and high stability, can trigger an avalanche with devastating consequences. There’s no rhyme or reason; it’s just bad luck and the results are deadly for the client and debilitating for the guide. Most of the great mountain guides I know have lost a client under these circumstances, and a few have lost their own lives as well.
With superior knowledge of the terrain and weather, a detailed history with the client, and years of experience, guides can reduce the risks of an ascent, but they cannot eliminate them. Risk looms over us every day in the field, influencing our choices, and reminding us of its brutal consequences.
I’ve heard young entrepreneurs criticize an experienced VC as “risk averse,” a job description I regard as fundamental to the exercise. Getting run over by the lucky truck early in one’s career is a great start for many young VCs, but durability depends on the prudent management of other people’s money, not on taking imprudent risks.
As a member of a portfolio company’s Audit Committee, I once approved the investment of our excess cash in Auction Rate Securities, rated AAA by Moody’s and advertised by underwriters as “the same as cash.” In 2007, the auctions froze, the underwriters (Lehman Brothers in this case) went bust, and it turned out these instruments were issued by offshore insurance companies with questionable finances.
By all rights, I should have been killed in that avalanche, buried under my “safe” investment in Auction Rate Securities. That the same avalanche cycle buried hundreds of my peers under the same pile of worthless securities did nothing for my shame then, and I’m now grateful for the lesson lived: the excess cash on the balance sheet of my portfolio companies is invested in securities with the explicit guarantee of the Federal Government of the United States, period.
There is no such thing as safe.