This Week in Venture Capital and Artificial Intelligence: Picking Winners and Losers In Venture Capital

Every week I will share and summarize ideas and insights with the LinkedIn community. Some of the summarizations I may have covered during the week, and other things may have just been passing thoughts.

The Duties of a Venture Capitalist

I recently endorsed a book written by a prominent investor on venture capital, and it really gave me some thought-provoking conclusions about where venture capital is at today and where it is headed. I will share below.

The one thing that stuck with me, is that it is very hard to pick winners and avoid losers at the early stages of venture capital.

There is no certain process or strategy to venture capital. There is just the thesis which resonates from the principles and vision of the General Partner.

Otherwise speaking, your strategy which is predicated by your thesis is subject to change as a venture capitalist because you are going to have new situations thrown at you every single day that are very similar or dissimilar but not exactly to anything that you have ever dealt with before.

This is why it is so hard to pick winners and avoid the losers in venture capital, because anything can happen. So as a venture capitalist, flexibility is really key.

The first duty of a venture capitalist is not to pick winners and avoid losers, the duty of a venture capitalist is to define what winning is according to thesis and then go after it. Winners are not picked, they are hand crafted overtime.

The second duty of a venture capitalist is to put a winning team together that can go after the defined vision…

I INVEST IN LEADERS, NOT PRODUCTS

Putting A Winning Team Together As A Venture Capitalist

Start with the founders. If the founders don’t have character, then you don’t have anything.

What is character? Well I will go back to my Marine Corps days which I do a lot when I am making examples for something I am explaining. EVERYTHING goes back to that for me, because there are barely any BETTER ran organizations than the Marine Corps. The Marines are the pinnacle example of quality, and they are the reason I have gotten to where I am at so far in life.

With that said, I will start with the Marine Corps 14 Leadership Traits. If a founder does not have one of these, just one, then they lack character. They do not need to have 100 percent of every single one, they just need to have a lot of every single one (like 50 percent or more) and be diligently working to obtain the other 50 percent.

The Marine Corps 14 Leadership Traits.

Here are 14 leadership traits the U.S. Marine Corps values:

Judgment - Good judgment means making smart decisions quickly. A leader with judgment predicts challenges and prepares solutions, typically collaborating with the right experts. Show your judgment by:

• Working with respected professionals
• Clearly communicating your ideas
• Keeping everyone aligned toward a common goal

Justice - Fairness builds a balanced culture. A just leader assigns tasks based on merit, ensuring fairness. Demonstrate justice by:

• Understanding why you make decisions
• Eliminating bias from your choices
• Listening to feedback and making improvements

Decisiveness - Decisiveness is about critical thinking and acting fast. Gather relevant info, make quick decisions, and lead with confidence. To be more decisive:

• Prioritize urgent tasks
• Adapt your decision-making methods
• Consider your team's morale before finalizing decisions

Integrity - Integrity is about staying true to your values and keeping promises. A leader with integrity stays honest and honors confidentiality. Show integrity by:

• Supporting your organization with loyalty
• Being selfless in your actions
• Respecting your people, both publicly and privately

Dependability - Being dependable means owning your responsibilities and delivering results. A reliable leader meets expectations and leads by example. Prove dependability by:

• Arriving early and staying focused
• Limiting distractions to increase productivity
• Collaborating to meet deadlines

Tact - Tact is using emotional intelligence to keep strong relationships. Leaders with tact give feedback that motivates others. Show tact by:

• Practicing active listening
• Demonstrating empathy
• Being respectful and mindful of differences

Initiative - Taking initiative means completing tasks without waiting for orders. A leader with initiative tackles problems head-on. Show initiative by:

• Volunteering for extra responsibilities
• Seeking feedback to improve
• Anticipating challenges and discussing solutions

Endurance - Endurance means pushing through challenges, both mentally and physically. Strengthen your endurance by:

• Regularly exercising to build stamina
• Setting healthy routines and priorities
• Viewing obstacles as opportunities for growth

Bearing Bearing is how you carry yourself and command respect. Build your bearing by:

• Following a code of conduct
• Using confident body language while remaining approachable
• Learning from respected leaders' examples

Unselfishness - Unselfishness is putting others' needs ahead of your own. Show you're unselfish by:

• Finishing tasks yourself rather than passing them off
• Listening to your team and integrating their ideas
• Taking responsibility when things go wrong and offering support

Courage - Courage is staying strong in tough situations. Admit mistakes and stay calm under pressure. Show courage by:

• Practicing self-discipline
• Developing techniques to manage stress
• Leading reforms when needed

Knowledge - Knowledge is understanding specialized topics. Boost your knowledge by:

• Studying command policies and responsibilities
• Learning how your people think and operate
• Reading about leadership

Loyalty - Loyalty means being committed to your team and the mission. Show loyalty by:

• Protecting confidential information
• Sharing positive stories about your team
• Supporting your superiors' decisions

Enthusiasm - Enthusiasm is staying positive and energized. Keep your team motivated by:

• Celebrating achievements
• Understanding what drives your team
• Using their motivations to help them succeed

If you have a founder who exemplifies these 14 Leadership Traits, then you have a winner.

The Marine Corps 14 Leadership Traits were formalized during the early 20th century, though their development can be traced back to foundational military leadership concepts.

The Marine Corps began codifying leadership principles and traits as part of its formal training programs after World War I, as the need for standardized leadership development became more pronounced.

The 14 Leadership Traits of the U.S. Marine Corps have remained unchanged over time because they embody fundamental qualities that are timeless and universally applicable to effective leadership.

Products change over time; they fail and become obsolete. Like the Marine Corps 14 Leadership Traits, core principles and purposes of a leader that are necessary to lead and win do not change. This is because timeless values and core principles and purpose are foundational in nature and there are no gray areas. We win with people and principles, not products and not on accolades…

Sometimes A Loser Looks Like A Winner, and Sometimes A Winner Looks Like A Loser

The truth about venture capital and investing is that to be a winner, you will lose a lot.

I believe in looking where no one else is looking. I believe in thinking for yourself. I believe I am actually better off thinking for myself. The truth is that no one mentor or advisor can guide you to something that is for sure going to work for you. They can tell you what worked for them, but that does not mean it will work for you. You must decide that for yourself. No one can tell you where to look for the founders that can become winners for your portfolio. You must decide that for yourself.

The first best thing that a mentor or advisor or anyone for that matter can do for you is to let you fail.

Once you have learned how not to fail, the second best thing they can do is open doors, including doors that lead to more money.

You need to fail first, because if you do not experience the pain of failure, getting money will only help you fail bigger most likely.

The third best thing they can do is share their most personal and intimate experiences and let you run with that.

The worst thing they can do is give you advice instead of facts. Advice is subjective. Facts are what you really want.

One of the things I ask founders is to tell me about all of their horror stories and failures. I want to hear the gritty dirt and what they have had to come through to get to where they are at now.? Why? Because it illustrates the fact that they have character and depth and grit. All things necessary to be a great founder.

If a founder has not lost a lot, I probably don’t want to talk with them about anything serious, but there are exceptions. The exception is did they go through some sort of experience that required unbelievable grit e.g. something a VERY small percentage of the population does; I am talking like 1 to 2 percent of the population. I ask about all of a founder’s failures because it lets me know where a founder falls on the “Grit Scale”…

How To Spot Founders With The Potential To Win

I was recently sitting down with a founder and I asked them, “so what do you look for when you hire people”

The answer was “well I look for someone who is highly knowledgeable within their field and can understand our product at the most complex of levels”

What I would have preferred to hear is “we look for people with integrity, reliability and those who have a high level of enthusiasm to be the best at their job. We look for people who have the guts to break the mold and consistently improve”

I remember a time when I was a young Marine, about 20 years old in 2002. My unit was out doing a multi-week large scale battlefield exercise with other adjacent units in the desert in Yuma, Arizona. Just during this time we had left our tents to go out on mission. I realized as we were leaving the camp in the truck that I had left my rifle in one of the tents. My stomach sank to my feet. This is the one thing you do not want to do as a Marine. Fortunately the stakes were low; if you do this in combat, the stakes are a lot higher.

We turned the truck around and when I got to the tent, my Sergeants had found my rifle. Losing or leaving your rifle or weapon or classified piece of gear unattended or behind is a big no-no in the military, especially the Marines.

I would say in many organizations this is a fire-worthy offense.? But the Marines usually don’t fire you when you make a mistake. Instead they keep you in the Marine Corps and decide to help you learn from your failure, painfully. My Sergeants took me out to the middle of the desert for 12 hours in the hot sun and made me dig through the hard desert surface. I dug a hole about 4 to 5 feet deep. Then I had to disassemble my weapon and all of it’s parts, some parts being very small the size of a toothpick. Then I had to bury them. And then re-dig them out.

The lesson was painful and broke me down to tears. But it made me better. I never lost or left my rifle again.

The Marines don’t fire you when you fail, they make you better. The process of getting better can be painful, but you know what they say, no pain, no gain.

No Pain No Gain. That is how you make leaders. Figuring out how a person thinks about hiring and firing will likely tell you a lot about their leadership capabilities. ?A leader’s job is to hire good people and make them better, not fire them…

Last But Not Least: Simplicity, Complexity, and Consulting

You want both. You want a highly complex product in terms of hot it is made, but a highly simple product to sell into the market in terms of hot it is used.

Simplicity from a user end makes your product adoptable and usable; it makes the process of using the product an unconscious endeavor of ease. Now complexity is not what you want for your users. Rather, it is what you want for the back end of your product. Having a highly complex engineered product creates a huge barrier to entry.

You also want to ensure you have a consulting aspect to the business. Having a consulting aspect to your business supports the sales and customer retention. It allows for interaction to take place with your customers so that the best, most relevant innovations can take place. Consulting helps facilitate the growth of a sustainable and scalable company.

For example Apple is a product company with a great customer service consulting element. Their main avenue is to sell you a product and a subscription. But they are constantly consulting with you in the process from the first purchase of your phone and then all through the entire Apple experience. Consulting makes the process simpler for the customer. Imagine if there were no Genius bars or Apple customer supports; I have had to use these services on many occasions and without them there were times I would have thrown my phone out my window due to frustration and gone to a different provider.

Know your audience. Some products are very complex to a user. You can’t sell to them. For example, my iPhone may be highly complex to a person who is 80-85 years old. You don’t sell to them. Instead you sell them an old-school push-button brick phone with no internet capability. An 80 year old probably does not want to scroll Facebook and text constantly, rather, they more than likely just want to make phone calls. My girlfriend’s mother is one of these people.

Imagine cooking lasagna. There are quite a few ingredients and process that go into making lasagna, but the end result is one simple, yummy dish. This is the way you want your products…

Creating simplicity for the user is knowing your audience. Having a winning product and company means having a complex system in place that delivers an easy experience.

Conclusion: These are the winners. The companies that will scale.

In conclusion, the role of a venture capitalist is not solely about picking winners or avoiding losers; it's about defining success according to a thesis, building the right team, and creating a culture that embraces growth through failure. As venture capitalists, we must remain adaptable, as no two situations are alike. The process is less about selecting ready-made winners and more about shaping and nurturing leadership traits, character, and resilience over time. By focusing on both people and principles, rather than solely on products, we can build companies of consequence that are not only scalable but also sustainable in the long run.

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

1. ) Upcoming - Stay tuned for:

-- Show release with Serg Masís on my podcast titled Explainable AI

-- Show release with Rohan Hall on my podcast titled Explainable AI

2. ) Upcoming publication

-- On IdeaScale, a well-known global innovation platform I write for

You can find out more about these by tuning into my LinkedIn profile daily and peaking my CV that is listed below from time to time. Also if you would like to be a guest on my 2 podcasts, Capital Unscripted, or Explainable AI, or if you would like to be a contributor to any of the medias I write for or am partnered with, -- includes AI Accelerator Institute , Idea Scale, or AI news -- then please reach me by inboxing me.

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

How to contact me:

-- Other than LinkedIn, if you want to know more about me or hear more from me you can view my CV here: www.paulclaxton.io

-- You can also schedule a meeting with me here by going to the bottom of my business card and following the instructions.

#ai #artificialintelligence #vc #venturecapital #startups #entrepreneurship #leadership #leaders #aiblogs #vcblogs #venturecapitalist #founders #investing #paulclaxton #principles #ethics #standards #usmc #marinecorps