Ilya Strebulaev is a professor of finance at the Stanford Graduate School of Business and author of the upcoming book The Venture Mindset: How to Make Smarter Bets and Achieve Extraordinary Growth. Ilya was born in Moscow. He exhibited a gift for numbers and a boundless curiosity from an early age. He thought he would become a mathematician and attended Moscow State University, the prestigious institution responsible for producing several of Russia’s most acclaimed thinkers. Alas, Ilya’s interests leaned toward more practical applications, and he soon found the field of mathematics too heavy on theory and abstractions. He sought to become an economist instead, graduating with Bachelor’s and Master’s degrees in economics. However, Ilya soon found the field of economics too removed from the physical world. He determined then that he would become a “finance guy” and matriculated into a PhD in finance at the London Business School. In his fifth year there, he found himself in San Diego, at that yearly zoo of a conference for aspiring business professors seeking to land a job in the cutthroat academic job market. He sold himself well. The business schools saw in him a promising scholar. Ilya received several callbacks for on-site interviews, which led to many offers. But there was no offer quite like that from Stanford University. In 2004, the same year that Google went IPO, Ilya accepted the position of Professor of Finance at Stanford. The young scholar packed his bags and moved to the U.S., forever intertwining his life with the story of Silicon Valley.
Twenty years since arriving at Stanford, Ilya has established himself as an academic authority in corporate finance and a pioneer in the study of venture capital. His curriculum vitae brims with prestigious academic honors and teaching awards, on top of a book and long list of published works. With wire-framed glasses and dressed in shades of blue and gray, Ilya looks patently professorial and moves with the gracefulness of his former days as a competitive ballroom dancer. He is effortlessly charismatic with a good-natured humor, hardly the stuffy caricature you would picture as a renowned academic. During the pandemic, when he made the decision to turn his years of research on VC decision-making into the book The Venture Mindset, Ilya was busy organizing bottles of wine into neat stacks in his expansive wine cellar with the help of his neighbor Alex Dang, a former student and eventual co-author. After years of writing for academics, Ilya vowed that he would not “write a book for one person but a billion people.” He wrote The Venture Mindset with a popular audience in mind. The result is a page-turner that is expected to chart the bestseller’s list upon its release later this month. The Venture Mindset is only the beginning for Ilya though. The book comes first, the launch of the global Venture Mindset movement next.
Sam: You are coming out with a new book later this month called The Venture Mindset: How to Make Smarter Bets and Achieve Extraordinary Growth. Could you share some insights about what you mean by the Venture Mindset?
Ilya: The Venture Mindset is really the accumulation of all my research insights at Stanford in the last 20 years about how venture capitalists make decisions. When I first came in contact with venture capitalists, I realized that they made decisions very differently from traditional finance decision makers. Their process was very different from how we teach decision making in MBA programs today.
Over the course of my research, I came up with insights about the specific principles that venture capitalists use to make decisions, how they make these decisions, and why it is different from decision making across other finance fields. Along the way, I also realized that all of us can benefit from how venture capitalists make decisions. Why is this? Well, if you’re a large corporation in the era of stability and marginal improvements–an era that I think is coming to a close–you don’t need what I call the Venture Mindset because you don’t deal with very high uncertainty. So traditional decision making that we teach, for example in our MBA classes, is very useful there. But whenever there is a situation of high uncertainty or disruption or changing landscape in the industry, a traditional mindset of how you make decisions will not work very well. Of course, venture capitalists have been facing this challenge for 50-plus years. To succeed and survive, they came up with specific principles, which make up their Venture Mindset.
Sam: Could you share an example of one of the Venture Mindset principles?
Ilya: We identified nine principles of the Venture Mindset. One of them is what I call “agree to disagree.” If you look at all the studies of large corporations, you know that they make decisions either through the authority of a boss or through a process of consensus, which means that everybody has to coalesce around a specific decision. That’s the right decision-making process in an environment where nothing changes and everybody is an expert. But in the venture capital world, firms that do not rely on consensus actually perform much better. The reason is that there’s a lot of uncertainty. If you don’t know much about the future or if the future is very unpredictable, then consensus is dangerous because you typically would not bet on the best projects and outliers. Agreeing to disagree is a principle that the most successful VC firms pursue.
For each principle, we share what we call playbook mechanisms you can use. So how does “agree to disagree” work out in practice? The relevant playbook mechanism is non-consensus. The most successful institutions don’t require unanimous approval. At Founders Fund, for example, if you are a partner, you just need to convince one other partner to go along with you and you can make the deal, even if others disagree. At Venrock, you can make an investment even if everybody else disagrees.
We discuss a lot of specific mechanisms like this one in the book. Not every single mechanism will work for every single organization, but I think leaders should think through those that could work and are relatively easy to implement.
Sam: What was the impetus behind writing this book?
Ilya: I had been writing about Venture Mindset principles for some time, but I never thought about putting those ideas in a book. I actually wrote books before, but all of them were academic books that, you know, perhaps five people in the world would be interested in actually reading. Then COVID hit. One of the people in my COVID bubble was Alex Dang, a former student of mine. He had become a partner at McKinsey and was in charge of launching many products on Amazon. I’m into wine and have a large wine cellar. Alex lived close by, and I needed help organizing my wine cellar. He volunteered to help. We spent hours in my very, very cold wine cellar. It was 54 degrees, so we were in winter hats, scarves, coats, and so on. We discussed the principles of the Venture Mindset during this process. At some point, he said, “You know what–you should write a book.” I told him that I didn’t want to write a book for one person, but a book for a billion people. He said, “Let’s do it.” So he became my co-author. It was amazing because he brought a lot of practical expertise. That’s the origin of the book.
Sam: Is there any specific advice you would share with the emerging cohort of VCs across the EVCA?
Ilya: My co-teacher in my venture capital class at Stanford is Brian Jacobs, a co-founder of Emergence Capital. He likes to tell our students that the right time to increase the network was yesterday. In other words, building your network is extremely important. What matters is not just the size of your network but its diversity, because you can never know everything that’s going on or what’s going to happen tomorrow. The most interesting deals really happen at the interdisciplinary level. So I think that’s critically important. You should have a plan for building your network.
Going back to the principle about “agree to disagree,” if you’re a junior VC and pre-partner, you should pay particular attention to the culture in your venture capital firm--how the partnership takes into account the contributions of more junior members of the team. I have observed firms that take the juniors very seriously and let them talk first in a meeting. These firms tend to be more successful and have a better culture. I think it’s very important for pre-partner venture capitalists to realize that the world is wide, and that there is a huge diversity in firms, so you should always seek a diversity of ideas.
Sam: You joined Stanford in 2004 as a Professor of Finance at the Business School. Back then, venture capital as an asset class was not a focus in academic circles. What was the impetus behind tackling the field of venture capital in your research?
Ilya: I’ve been at Stanford for 20 years. When I joined the business school, I didn’t know anything about venture capital. There weren't any academic programs for teaching or studying venture capital, nor was there much data or research. Frankly, finance people didn’t really care about venture capital. Nobody at Stanford at the time was doing research on it. My initial interest in the field was piqued by students in my class on traditional finance. Many of them became startup founders and venture capitalists. I talked with them. I realized that the way venture capitalists made investment decisions didn’t sound like traditional finance as we taught it to MBA students at Stanford. Then the dean of the Business School met with the finance professors and said, “Look, I’m kind of unhappy with you guys because our students love venture capital, entrepreneurship, and startups, and you don’t teach that.” We didn’t have a tenure-track professor teaching venture capital. I raised my hand and I said, “I’m going to do it.”
So amazingly, I came to venture capital through teaching. The first year I taught the subject, I knew students were going to ask me a lot of practical-oriented questions to which I didn’t have the answers. For example, students asked how to value venture capital-backed companies. I realized that the traditional ways to value companies in finance, such as NPV methods and multiples, were not well suited for early-stage startups. This resulted in several years of research as I sought to figure out how venture capitalists made decisions. We ended up doing a survey of 1,000 venture capitalists about how they make decisions. That research formed the basis of an academic paper, the most cited academic paper in the field of venture capital.
Sam: Where do you see yourself a decade or two from now?
Ilya: I still see myself at Stanford. I’ve been to many amazing places in my life, and I have yet to find something better than Stanford in terms of its intellectual environment, open-mindedness, and ability to allow people to pursue their goals. Apart from that, there are so many things that we have not discovered--not just about venture capital but more generically about innovation and how we can improve decision making everywhere. I hope to launch the Venture Mindset movement around the world. I really believe that it can help everywhere. I’m open-minded. We’ll see where it will lead me.
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