“The true sign of intelligence is not knowledge but imagination” – Albert Einstein
Most of the venture capitalists toot the mantra of domain expertise and domain knowledge. It is probably a risk-averse strategy to back entrepreneurs and founders who start companies leveraging their own experiences and expertise. And that is probably mainstream thinking and quite acceptable. May be, in some ways, that can actually be interpreted as a sign of humility and a genuine admission of admiration for experience and expertise.
It cannot be argued that a patient facing heart surgery, or for that matter any surgery at all, would prefer someone with relevant and extensive experience with the same procedure that she faces. But that surgery is about knowing what one is doing having done it many times before. The argument is valid that one who has gone through hundreds of a certain kind of procedure would have seen it all as far that particular procedure is concerned and, hence, will instill a greater degree of confidence in the patient. But disruption is not the same as heart surgery in the sense that “doing it the same way and having seen it all” is not the exact definition of disruption to begin with. Disrupting is all about doing something like no one has done it before. Like trying out a new way. Like carving out a new path never tread before ever. Disruption is as unlike heart surgery as the Sahara is unlike the poles. Well, said another way, they are polar opposites.
While humility is an admirable trait, a quick look at the websites of most (definitely not all, I admit) venture capital firms highlight domain knowledge as a core characteristic of their partnership. Domain knowledge in any field can probably be acquired by one of many ways – by studying a certain subject; by interning in a certain sector of industry; by working in a certain functional role or a certain industry. In short, domain expertise can be acquired either by education or by working. Education can either be academic preparation, certification courses, or in the odd instance self-education. Work experience is more straightforward. But domain experience and domain expertise can definitely be claimed without either academic or actual work experience. Yet, just a random browsing through any leading venture capital firms’ website (bar the few firms and partners) will show how badly bastardized that term “domain experience” is. Far from humility, it is an obvious signal of arrogance and, maybe, even delusion.
A general awareness of the facts, the procedures, and participants in an industry is a very low bar for domain knowledge. And it is doubtful whether most of the venture capitalists and investors would even be able to pass that low bar. One incident comes to mind. A young and upcoming partner at a leading venture capital firm claimed to be a telecom equipment domain expert, despite the fact that she studied Art History albeit at Harvard University. She could, may be legitimately lay claim to that expertise, because she had indeed led a number of financially successful investments in telecom equipment companies during the boom days of the telecom industry in the United States in the late 1990s. Her investment track record was impressive and she deservedly achieved success within her firm, being named partner at a very young age. However, in one particular meeting, when assessing an investment opportunity in yet another telecom equipment startup, during the conversations it became obvious that she really did not know even the basics of the telecom industry – she was stumped when someone asked her what she understood to the difference between a router and a switch. A fundamental lack of understanding demonstrated her lack of any domain knowledge at all in an area that she legitimately could claim significant investing experience and success.
Yet venture firm after venture firm flaunt domain expertise in their marketing collateral. All that is still quite acceptable. But what is troubling is their insistence on domain expertise when it comes to investing – while claiming their own hypocritical posturing as domain experts with no legitimate basis to be advocates for domain knowledge. A venture capitalist with no first hand experience of ever having written even a single line of code will find himself qualified to judge a software company and yet demands software industry experience when looking for people to back in a software startup. Such arrogance is both misplaced and hypocritical.
Unbigotry 