Venture capital is a glamorous, but very difficult business. The glamour comes when investments lead to breakthrough products and when portfolio companies go public or are acquired. But less than 10% of start-ups deliver outstanding investment return, and the majority of start-ups fail. “It takes wisdom, insight, hard work, and a little bit of luck to succeed,” says Diamondhead Ventures founder, David Lane. It also takes humility, perseverance, and a long term perspective to endure when start-ups fail.
Source of His Strength
David Lane draws on the hardship he experienced early in his life to navigate the ups and downs of the venture business. He was a top athlete and excellent student in high school, when a neurological reaction to a virus, called Guillain-Barré Syndrome, suddenly disabled him. “When you are immobilized for an extended period of time, you start to focus on how precious your body is.” says Lane.
He was bedridden for a week, but it took several weeks for him to learn to walk again and many months to fully recover. His temporary disability helped bring focus to his faith. “I was a Christian at the time, but it made me appreciate how material things in our lives are interesting, but insufficient. I reflected on what’s important and what is not, and I circle back to those thoughts on a regular basis.”
Long term Perspective
Lane gained a long term perspective from his ordeal, which he says “gives him peace.” “I know that I am living my life to the best of my ability. At the end of the day, I feel comforted knowing that my belief in God prepares me for life after death. We have only a short time on Earth, but we live for eternity.”
Having a long term perspective also helps Lane in business. “I’ve been in the venture business since 1987. Companies used to go from first funding to exit in five or six years. Now it is probably eight to ten years. It is a balance between sprinting to get things done and running a marathon.”
Lane started in the venture business with the Harvard Management Company, the investment entity for Harvard University’s endowment, where he focused on investments in early and later stage companies in information technology and healthcare. Later he worked as a partner at Onset Ventures, a Silicon Valley-based firm. He founded Diamondhead Ventures in 2000.
Not all venture firms are the same. Diamondhead differentiates itself in two ways. It is focused on early round investments in companies with disruptive technologies coming out of university research labs. In addition, the firm touts what Lane calls “a world-class ecosystem” of industry and university advisors as well as corporate partners to support its portfolio of entrepreneurial companies. “Few firms have two general partners as we do at Diamondhead who worked at leading universities [Harvard and Stanford] and who understand how universities work. Both that expertise and Diamondhead’s rich ecosystem of advisors set us apart,” says Lane. Its strategy works. With its $140 million fund, Diamondhead has helped over 20 companies from start-up through acquisition.
Criteria for Investing
So how does David Lane decide which companies to fund? Here is what he looks for:
- Integrity and openness – “It is being true to what you believe, and how you want others to treat you. It’s being honest and open to feedback and constructive criticism. Disclosing more, not less, and being honest about why a decision should be made is very powerful.”
- Right people – “People are critical to success. If a company creates a great mission, and executes with integrity and strong ethics, recruiting becomes much easier. And in Silicon Valley, trying to find top notch people in large quantities is very difficult.”
- Collaboration – “I like to be close to and supportive of my entrepreneurs. I don’t make their decisions; but I like to provide input in a collaborate manner for the strategic decisions that need to be made. I like to fund entrepreneurs with whom I can communicate well and who see the world in a similar way as I do.”
- Shared values – “An entrepreneur is an individual who brings their mental framework to their company and decision-making process. Having alignment on values and a sense of right and wrong is very important for investors and entrepreneurs. The challenge is that they never line up 100 percent. Shared values are critical, because values dictate actions.”
- Knowledge of the market – “I want to find an individual who deeply understands a market and a market need. Silicon Valley has learned many times that technology alone does not sell. Solutions sell. I would much rather find an entrepreneur who has keen insight, than an individual who has a great technology, but is not sure which market to apply it to. And, of course, I must believe it is a good business idea which can succeed.”
But even with best efforts, businesses sometimes fail. “One of the hardest things to do as a venture capitalist is to decide when to no longer fund a company,” says Lane. Individuals and families are affected, but venture firms also have a fiduciary responsibility to their investors. “If a business cannot achieve an economic scale, I believe it is better for the people involved to seek other opportunities. God has a mission for all of us. It may not always be obvious, and it doesn’t always go in a straight line.”
In spite of its difficulties, David Lane loves his work. “It gives me great joy to help individuals create great companies — something that is extremely hard to do.”
A Big Idea
By nature, venture capitalists think big. They take an idea and hope to make it into a breakthrough technology and successful business. But big ideas are not confined to business. Lane is pursuing a faith-based idea — helping start 1,000 new churches in the Bay Area within 10 years. This is a big goal to pursue in an area that is not particularly friendly to Christian faith. But God is working in the Bay Area, and David Lane is one of God’s workers. The goal of 1,000 new churches comes from a consortium of business leaders, pastors, and non-profit leaders called Transforming the Bay with Christ (TBC).
Pat Gelsinger, CEO of VMware leads TBC; David Lane is on the TBC team focused on its church planting initiative. “What is exciting for me is to create an ecosystem for church planters, in the same way that I created an entrepreneurs’ ecosystem at Diamondhead. I believe an ecosystem is powerful and can be built in the Bay Area where planting pastors are supported in a way where the odds for their startup – their church – can be dramatically increased in comparison to going it alone.”
Starting and building businesses and churches are all part of David Lane’s God-given purpose — to help people. “I believe that God gives everyone unique talents. My goal is to develop and use my talents in a way that will benefit others, and can benefit the kingdom God created.”