Should Investors Bet on The Horse or The Jockey?

Last night, TiE Midwest Charter Members and select invitees gathered to discuss the decade old Kaplan Study “Should investors bet on the Horse or the Jockey?” moderated by John Aiello (The SAVO Group), Adarsh Arora (Athena Security) and Steve Kaplan (Chicago Booth). Attendees Included: Troy Henikoff, Linda Darragh, Sunil Gaitonde, Bob Zieserl, Dan Malven, Anjali Gurnani, Jim Gagnard, Charles Wu, Steve Gould, Scott Glickson, Mike Jones, Geoffrey Cockrell, Kevin Young, Bob Geras, Sam Guren, Arvind Singh and Rakesh Thakkar.

While the majority in the room believed the jockey (defined as the management team) to be most important, there were ample arguments either way all dependent on both market conditions, stage of company and definition of success (IPO vs. acquisition).  Below are a couple of great insights, examples and advice for budding entrepreneurs. 

Insights/Comments In Favor of The Jockey:

1. The jockey is always most important, but it may not always be the same jockey: very rarely do you have a jockey who is great at all stages (startup, growth, exit).
2. Businesses usually require a different jockey at each stage: 1^st (flexibility, comfortable w/uncertainty, coachable, tenacious), 2^nd (someone who is operational, understands the numbers, articulate and motivating) and 3^rd (someone who is a visionary)
3. Macro-economy definitely plays a role-when the market is bad, you need a certain type of jockey to weather the storm
4. The  jockey becomes slightly less important the further along the company is
5. PE firms never back a business, they only back the jockey

Insights/Comments In Favor of The Horse:

1. Some investors are very good at picking jockeys who pick the right horses, thus one could argue the horse is more important
2. There are very few businesses that IPO that have changed their core business after it was funded.  Not Amazon, not Cicso, not eBay, not Google, not Apple, not LinkedIn, not Facebook, not Pandora, not ...  Try to think of one other than Groupon (if it goes public).  On the other hand, there are lots of business that changed jockeys.
3. If I were investing on behalf of a fund, I pick the horse—if I am investing my own money, I pick the jockey

Advice For Optimizing Your Chance of Success As A Jockey:

1. Need to have the right DNA (flexibility, tenacity, coachability, etc.)
2. Great biz idea/right market
3. Tools: capital, mentoring, tech talent
4. Network
5. Ability to sell
6. Ability to build a management team and a business
7. Passionate and knowledgeable
8. Financially “savvy”

Do you agree? Disagree?