For the past three years, the Consultant Debunking Unit (CDU) has gone about its business — bravely, steadfastly, and earnestly bringing intellectual honesty and linguistic integrity to the ever-burgeoning ranks of management consultants. While that job is not done — and, in all likelihood, never will be done — the CDU has decided to diversify and, at least for one issue, to enter the fray with yet another profession whose members desperately need critical oversight: venture capitalists. Welcome to the newly opened files of the Fast Company Venture Capitalist Debunking Unit (VCDU)!
The VCDU was called into action by reports that a piece of popular investment wisdom was making the rounds within the venture-capital community: "Bet on the jockey, not on the horse." According to Jerry Colonna, a founding partner at Flatiron Partners, a venture-capital firm based in New York City, this equine investment advice was trotted out at a recent MIT Enterprise Forum. The horse sense behind that saying? When it comes to rating startups, says Colonna, investors who are inclined to pony up their money should "bet on management, not on the company."
Spurred on by this sighting, the VCDU saddled up to conduct some historical research — and found that this particular horse had left the stable long ago. As far back as May 1996, for example, in an interview with CNN, Arthur Andersen consultant Richard Salute advised would-be entrepreneurs on the lookout for investors, "You really have to understand that people bet on the rider, not the horse, in many of these circumstances." For an update, the VCDU tracked down Salute in New York. He says that his advice is as true today as it was three years ago: "It's all about people. If you don't have the right people implementing a business plan, then you're basically going to fail. The horse is important, but what makes the horse go is the rider."
So that's the official morning line. But is it sound advice — not only for entrepreneurs and VCs, but for racetrack tipsters as well? Odds are, it's a loser. But to find out for sure, the VCDU headed for the track. Right out of the gate, the VCDU got some racing information straight from the horse's mouth — or, more accurately, from the jockey's mouth. In this case, the mouth belonged to Kentucky Derby-winning jockey Pat Day, the all-time leading rider at Churchill Downs and a member of the National Thoroughbred Racing Hall of Fame, with more than 6,000 career wins. The VCDU caught up with Day at Florida's Gulfstream Park. "That saying is absolutely false," Day says. "The horse is the primary, the most necessary ingredient. The horse's talent is what really counts. No jockey can make a horse run any faster than it's capable of running." So, the VCDU asked Day, if he were betting instead of riding, which would he wager on, the jockey or the horse? "The horse, no question."
There's no criticizing Day's racing form, but when it comes to his handicapping advice, would a seasoned trackside observer say yea — or neigh? For an expert bettor's opinion, the VCDU spoke with John Asher, vice president of racing communications for Churchill Downs. Asher, who has covered every Kentucky Derby since 1982, hosts TV broadcasts of Churchill Downs events and also serves as the handicapper for most races at the track. When Asher sets the odds for a race, which does he look at first: jockey or horse? "I never look at the jockeys first," Asher says. "I always look at the horses first. In some cases, a good jockey can help, but I have yet to see a jockey who can throw a horse up over his shoulder and carry it across the finish line."
And, like any good VC, Asher can harness some impressive statistics to carry his argument across the finish line. At the 1998 Fall Meet — 24 days of races at Churchill Downs, held last November — Hall of Fame jockey Pat Day raced 163 horses and won 43 times, winning 26.3% of his races. Jockey Calvin Borel raced 184 horses, and won 35 times, posting a 19% winning percentage. If you were betting on the jockey, you'd bet on Day. But, says Asher, if you had placed $2 to win on every horse that Day rode, you would have lost money — $40.80, to be exact. And if you had placed $2 to win on every horse that Borel rode, you would have come out ahead — by $58.80. That's because the odds reflect the quality of the horses. So much for betting on the jockey.
Despite all of this statistical evidence, says Asher, it's not uncommon for rookies and novices to bet on the jockey. "Many people who come to the race track are just visiting," he says. "And a lot of those people bet on their favorite jockey. That's a fine way to play it — if you don't like money."
Hoping to hit the trifecta, the VCDU found John Cronce, manager of corporate communications at Jockey International, the $525 million manufacturer of Jockey shorts, based in Kenosha, Wisconsin. According to Cronce, who has been at the undergarment manufacturer since 1994, there is a distinct parallel between the world of cotton jockeys and the world of horse jockeys. "In the underwear business, as in the racing business, you have to be an expert on inside information," Cronce says. "At the racetrack, I would always bet on the horse. The only time I bet on the Jockey is when I buy underwear."
A version of this article appeared in the JulyAugust 1999 issue of Fast Company magazine.