Nothing will be as fast as you want. A smart practitioner never panics or gives up when companies hit a bump. Those who are patient will not only profit but will ultimately succeed at the expense of those who panic. Patience should be married with intelligence — if you can no longer achieve the end game, it takes discipline to walk away and say, we are just not going to get there. Swallow hard and realize you just lost a few million. Along the way, we have to be fair with one and all. What goes around comes around. In the end, the best VCs are people who were fair, were smart, and treated everyone well. People seldom want to work with those who are out only for themselves.
ABILITY TO LEARN AND GROW
While there is no good predictor of what makes a good venture capitalist, some patterns are obvious. Those without substantial startup or operating experience can be successful in the profession. Although domain expertise may be good, it certainly is not of significant importance in the long run. Your performance eventually matters. “In my 20-year career as a venture capitalist, I have invested in all kinds of domains and companies. For long-term success in this business, you have to think more generally and push yourself out of your comfort zone. You should be willing to reinvent yourself,” says David Cowan, Bessemer Venture Partners.
It's not just a few skills that matter but the ability to “adapt/grow” with the company and reinvent oneself. Promod Haque of Norwest Venture Partners echoes this sentiment:
Being a venture capitalist requires a varying degree of skills. At a seed stage, the skills required are different from say, investments at a mid or later stage. At the seed stage, we have a founder. The venture practitioner needs to have the ability to understand risk, validate ideas, and connect these to the market. Exploration and validation are key steps at this stage. A startup is a no-name entity — the credibility and track record of the venture practitioner can be a tremendous asset in recruiting management talent and customers. Talent that can grow the company is usually in high demand and otherwise would not be available. In the early stage, the practitioner's ability to help the startup to find customers is very important. The Fortune 100 companies — those marquee customers that all startups seek — unfortunately avoid startups. They are trying to minimize the number of vendors and stick with the proven ones … even if you get your foot in the door, these companies need time and ability to assess the new product. It's a significant commitment … these are extremely busy executives and asking them to check a new product out requires strong suite of skills. As the company evolves further, the ability to syndicate the investment becomes critical. Other investors will look at how you are putting the investment rationale and leading the round.
AN INHERENT BIAS FOR ACTION
Seth Levine of the Foundry Group says that a good practitioner needs to have some attention deficit disorder (ADD) to be a good venture capitalist:
The core of being a good VC is the ability to move from one thing to the next, often completely disconnected thing, quickly and without slowing down. Rare is the time when I sit down and spend a few hours doing something (anything) without interruption; so much so that I generally interrupt myself these days if I'm spending too much time on any one thing, but mostly because in any given day things just seem to come up constantly. With something like eight companies that I actively work with these interruptions are all over the map — I may be helping one company sell its business, another raise capital, another plan for a strategic offsite and another with an executive search. Keeping all of this straight in my head is a bit of a task, as is shifting gears from talking about the tax considerations of a particular merger structure with one company to looking at moving into a new vertical market for another.
To summarize, a good VC has the ability to pick good investments and help build great companies. VCs with a mix of business experience and empathy, a supportive mindset can be “the investor of choice” and magnet for entrepreneurs. As long as your internal axis is tilting toward supporting, as Steve Jobs would say, those crazy ones, the journey will be a joyride.
4 Welcome to the Land of Ad-Venture
In a business of 10X outcomes, there are 100X applicants for every open position. And within the best venture firms, there are no openings posted publicly. Firms are small, tightly knit groups — a rock band, or a sports team of high performers — and bringing in a new team member requires careful thought, planning, and execution, else the whole thing blows up. Partners are vetted carefully over multiple engagements and long dating periods and are hired within known circles. Philosopher and author Joseph Campbell once wrote, “A bit of advice, given to a young Native American at the time of his initiation — As you go the way of life, you will see a great chasm. Jump. It is not as wide as you think.”
There are no barriers at all to entry, indeed, to get into the business of venture capital. The veritable pipeline of wanna-be investors is infinite and never-ending, with eager-beavers, gold-diggers, carpet baggers, opportunists, and some very few prepared minds. To practice law or medicine, you have the bar examination. Or enroll in a residency, put in grueling hours and start at the bottom of the proverbial ladder. The venture capitalists’ career path is not barricaded in any way, except intellect and investable capital. Some VCs have both.
ROLES AND RESPONSIBILITIES OF A VC
“… you need a license to drive a car or buy a gun, but not to be a venture capitalist.”
—Marc Andreessen, co-founder, Andreessen Horowitz (A16Z)
At New Enterprise Associates (NEA), one of the leading venture firms on Sand Hill Road with over $10 billion under management today, a bright associate level candidate shared his travails with me. After spending two years in investment banking, he joined NEA, where he is focused on enterprise software investments. The young man was adept and spoke fluently on all the major technology trends and the alphabet soup of IoT, 5G, and AI. “I was stunned to see how hard working most partners are at our firm,” he says. To newcomers seeking to dip their toe in venture capital, he says, “You have to prepare for a set of radically different tasks each day. Don't let anyone tell you this is easy. And you learn quickly to not take the first opportunity that walks in the door, but rather analyze the universe for the best.” Getting into a Sand Hill Road firm takes a bit of luck, experience, and skills. Yet for others, the challenges of getting in can be significantly higher.
Take the example of a pre-MBA analyst position posted at Bessemer Venture Partners, one of the longest-standing venture capital firms in the country (the firm started in 1911). More than 650 resumes, 42 first-round interviews, and 7 second-round interviews later, one offer was made. That's about 0.15 percent odds for an entry-level position! Such odds are daunting for any aspirant. Other positions on LinkedIn attract a large number of applicants, as many as 300 applicants for each position.
An investor with an international venture firm bemoaned the fact that post-MBA, getting in VC is not as easy. “We overoptimize for getting into venture but rarely does a candidate get two competing job offers from two firms. Unlike consulting, investment banking or other career paths where you have multiple choices, this is a narrow road.” Compare this with a career in investment banking and you get a very different picture. Alice Easton writes in the Daily Princetonian:
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