News / Firm News

What Basketball Taught Me About Being A VC

Posted on Oct 6, 2020
Blog Single

Football (aka soccer for you Americans) is the sport with the biggest fan base in Indonesia and I do follow the English Premier League very closely, especially because the team I support has finally broken the curse and won the league last season (#YNWA). But my friends and colleagues know that I am also a big fan of basketball. I am very bad with my feet and can’t properly play football. My hand-eye coordination is somewhat better and while I am never that good (couldn’t make the school team), I enjoy playing basketball very much.

As I started writing this, Game 3 of the NBA Finals has just finished and the Miami Heat managed to steal the game from LeBron James’ Lakers. Unlike football where my heart is stuck with Liverpool (after witnessing their last championship run in 1990), I don’t have a favourite team in the NBA. I do have a soft spot for underdogs, so I have decided to jump on the Heat bandwagon this Finals series. Although by the time you read this, this year’s champion may have been crowned.

A few weeks ago, my colleague An asked me how basketball affected the way I think about being a VC. And I took her challenge to write about it for our firm’s blog. This made me realise how my mind views my work as a game, very similar to how I view basketball.

So here are 3 things I took from basketball that shaped how I think about our work:

There’s No Work Like Teamwork

This may sound like a cliche but good teamwork is very crucial to a VC firm’s success. One superstar player in a basketball team cannot bring a championship all on their own. The basketball geeks may argue about the 2011 Dallas Mavericks where Dirk Nowitzki had to carry the whole team to win the title, but I’m going to save that discussion for other forums. However good Dirk was (and he was amazing), he had to have 4 other guys on the court to play, plus the reserves on the bench. And they did contribute in their own way: Jason Kidd with his assists, Tyson Chandler rebounding, Jason Terry hitting threes, you get my drift.

Unlike an angel investor working on her own investing her own money, a successful VC firm needs a cast of team members with different roles. Someone may be good at understanding one industry while someone else is expert in another. A team member might focus on fundraising (yes most VCs have to raise money from investors too). Another person might focus on fund operations issues. When doing due diligence on a company, I prefer to have multiple team members split the work and have healthy debates on the potential and risks of the deal

The feedback loop for a VC is notoriously long. We can only see real performance as the fund gets closer to 10 years (a normal fund life). We will surely make mistakes during that time. That’s why it’s important for the team to celebrate small wins along the way. Whether it is closing a deal, helping portfolio companies reach a certain goal, or securing an important investor, they are milestones that require teamwork to pull off.

When team members have full trust in each other to take different roles in the game, magic happens. The best player doesn’t have to always do everything, just like John Paxson taking the winning shot for the Bulls in the 1993 Finals instead of Michael Jordan.

Numbers Don’t Lie, People Do

Probably the most precious piece in my collection. My favourite player Charles Barkley card from 1989. Look at those stats! ????

My early fascination with basketball was in middle school, and it was partly due to the abundance of statistics on the game (which I later realised was typical to most American sports). I was one of those geeks who love mathematics. When I saw that players can be evaluated using statistics, I was totally hooked. As with most kids getting into basketball in the 90s, I also collected basketball cards. Before the internet era (and the lack of basketball coverage in Indonesian media), these cards were my window to players’ performance data.

Investing is also a statistics game. Investors rely on data and analysis to make our investment decisions, although sometimes instinct also play a role. Even the best investors out there won’t be able to guarantee 100% hit rate, just like the best basketball players won’t be able to sink 100% of their shots. Jordan famously has missed over 9000 shots in his career, but he’s still considered one of the best to ever play the game.

The most awesome basketball article I read in the past year was on how analytics was used to guide team strategies which ended up changing the game forever. If you love basketball analytics as much as the game itself, I really recommend this article and the book (already sitting in my Kindle unread for 8 months now).

The wealth of data in basketball can quantify what most fans feel watching the recent games: the way basketball is played has changed a lot. Players take much less midrange shots nowadays. They either drive inside shooting close to the rim, or take long jumpers for 3 points beyond the arc. This is summed perfectly in one picture below. Efficiency (measured as return on shot attempt) is the name of the game.

*jaw drop* ????

Our team also recently did an analysis about the game we play: early-stage investing. A lot of things have changed since we first made investments in this region. Better capital availability, valuation trends, different round sizes, exit trends, all these factors play into our investment strategy. It is important for us to understand our strengths and weaknesses and how this is placed in the environment we’re in. By collecting and analysing data, we clearly saw that the game has changed compared to 5–6 years ago. Numbers don’t lie, in data we trust.

When making investment decisions, it is important to run the numbers and see if they make sense. It’s quite tough for early stage companies where there’s limited traction, but we try to separate facts and imagination as much as we can. And the only way to do that? Doing our analysis work. Numbers don’t lie, in data we trust.

Social Justice For All

We saw several huge changes in the NBA this year. COVID-19 hit and all major sports leagues around the world were stopped. After a long planning process, the NBA decided to restart in a ‘bubble’ in Disneyworld Orlando. That in itself was huge. And by that time (end of July) a whole social justice movement swept the US and the world.

The games restarted like a scene from Black Mirror: no live spectators, big screens courtside showing audience watching from home, and BLACK LIVES MATTER plastered huge on the court.

Players are also allowed to display social justice messages on their jerseys in addition to their names.

LeBron James is (arguably) the best active player in the league. And he is one of the most vocal on the issue, “The game of basketball has always been bigger than just a ball and a rim and 10 guys on the floor. We use this platform to spread a lot of positive, a lot of love throughout the world.” Things actually heated up even more after another police shooting incident of Jacob Blake in Wisconsin at the end of August. Games scheduled that day had to be postponed because players refused to play.

It took a whole day of discussions by players representatives in the NBPA (National Basketball Players Association) before they agreed to resume the season. The decision to continue came with commitments to establish a social justice coalition and teams agreeing to help facilitate in-person voting for local communities, among other things.

People may argue about the effectiveness of those actions. But what is important is the realisation that anyone with a platform, especially a big platform like NBA players, can use it to make a statement and fight for what they believe in. This can of course cut both ways, with so many personal scandals of sports personalities in the past. A player was once charged for manslaughter, another was found carrying guns into the arena, one player made crude homophobic comment on TV, the list goes on. But one thing is for sure: everyone has a chance to use their platform to make positive change.

What does it have to do with our work at Patamar? Well one thing that attracted me to this space was the idea that as investors, we can leverage our funds to make positive impact for others, besides making financial returns.

As impact investors, we are driven by our mission to work alongside amazing entrepreneurs who are changing the world. We are proud of the companies we invest in, not just because they are creating scalable businesses, but also for their mission to make lives better for their mass-market stakeholders.

A great example is this article written by my business partner Shuyin about our latest investment in Vietnam, Kim An.

So yes, it’s clear that I am very passionate about both my line of work and basketball. So let me leave you with this old NBA slogan from the 90s: I Love This Game!

– Dondi Hananto, Partner, Patamar Capital