BIO: Richard Moran is a Silicon Valley investment and operations veteran. He is General Partner at Tonic BioVentures, an early-stage life sciences venture firm.
STORY: Richard was impressed by the success record of a young man, so much so that he got his company to invest $6 million to build a business. A few months later, the young man misbehaved in front of customers. Richard reprimanded him, but he did the same thing again and had to be fired. Richard’s company lost $6 million.
LEARNING: Pay proper attention to the findings of the due diligence. Don’t be distracted by past track records. Be careful of key man risk where the success of your investment is hinged on one person.
“Sometimes past performance is not an indicator of future performance in investing.”
Richard Moran
Guest profile
Richard Moran is a Silicon Valley veteran in both investing and operations. He is General Partner at Tonic BioVentures, an early-stage life sciences venture firm. Previously, he was the President of Menlo College. His background includes serving as a Partner at Venrock, CEO at Accretive Solutions, Chairman of Portal Software, and a Managing Partner at Accenture. His track record includes successful exits in software, gaming, food, and life sciences. He is a best-selling author with ten books to his credit.
His latest book is Never Say Whatever to be published by McGraw-Hill. He has a syndicated show, “In the Workplace” on CBS Radio, and is an “Influencer” on LinkedIn where he is a regular contributor but never reads the comments.
Worst investment ever
A young man, who had been very successful, wanted to start a new company and needed $6 million to start it. Richard was blinded by his success story and immediately got his company to invest in him. They gave the young man the $6 million he needed to build this company. The success of that company was all hinged on him because he was its core.
A couple of months later, the young man behaved inappropriately at a trade show. The partners went to Richard about what to do. According to Richard, the partners had two options. One was to fire him, in which case, they’d lose $6 million. The second option was to coach him; in this case, he might change or ignore it; if he ignored it, no one would want to be involved in his company.
Richard didn’t want to lose the $6 million, but he also didn’t want to keep him on. So he brought him into his office, yelled at him, and warned that he’d fire him if it happened again. The young man did something similar again. So he was fired, and Richard’s company lost $6 million.
The sad part is that there were hints of the young man’s bad behavior during due diligence before Richard made the first investment. But he ignored it.
Lessons learned
- Pay proper attention to the findings of the due diligence. Don’t be distracted by past track records.
- Sometimes past performance is not an indicator of future performance in investing.
- Whatever you do, know you’ll always get caught.
- Stay current.
Andrew’s takeaways
- Be careful of key man risk where the success of your investment is hinged on one person.
- Remember to talk to people who don’t like that company or have had a bad experience when you do your due diligence.
Actionable advice
Don’t go after the shiny objects that everybody wants. When doing your due diligence, it’s not just about the person or the company but also about the market. Find out what’s happening in that category.
No.1 goal for the next 12 months
Richard’s goal for the next 12 months is to stay healthy and continue to be an evangelist of common sense in the workplace.
Parting words
“Common sense in the workplace.”
Richard Moran
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