"At the 1998 Fall Meet -- 24 days of races at Churchill Downs -- Hall of Fame jockey Pat Day raced 163 horses and won 43 times, winning 26.3% of his races. Jockey Calvin Borel raced 184 horses, and won 35 times, posting a 19% winning percentage. If you were betting on the jockey, you'd bet on Day. But, says Asher, if you had placed $2 to win on every horse that Day rode, you would have lost money -- $40.80, to be exact. And if you had placed $2 to win on every horse that Borel rode, you would have come out ahead -- by $58.80. That's because the odds reflect the quality of the horses. So much for betting on the jockey."
What does that mean with regard to early stage investing today? Should investors really bet on the management team rather than the business proposition? In practice, do they really follow the "bet the jockey" rule of thumb?
Studies of angel investing behaviors generally indicate that the entrepreneur and the management team are dominant factors in decisions to invest, or not. A Richard Sudek study, published in the Journal of Small Business Strategy, names as the number one consideration "the passion and commitment of the entrepreneur." Omigosh, that's MOXIE. Second comes trustworthiness of the founder. Third comes the remainder of the management team.
So, if you're going to the race track, bet the horse. But if you're involved in startup businesses, either as an entrepreneur or as an investor, the common wisdom remains "bet the jockey."
My own opinion is that investors bet the jockey because they are well aware that nothing goes according to plan. More often than not, the business proposition must be altered to respond to fresh knowledge coming from the marketplace. The horse itself must be changed. Yes, the entrepreneurial jockeys have to change horses in midstream. This understanding of the startup world argues in favor of passionate, fully committed leadership, surrounded by a competent, experienced team. A group like that can catch, train, and ride whichever horse best suits the racing conditions.
Start with MOXIE!