Why is it ok hate on VCs? Why is it ok to generalize about our motivations, behaviors, and capabilities? Why is it ok to call us dumb?
I am a VC. I love being a VC and am proud to be one.
For some reason, it has become accepted practice in our industry to regularly and voiciforously disparage those of us who have dedicated our lives to supporting entrepreneurship as VCs. I am still new to this industry, but in my short experience I have found the vast majority of my venture colleagues to be some of the smartest, hardest working, most passionate people I’ve ever known. None of them do this because it is the easiest and most efficient way to make the most money. They do it because they are inspired by the work and are dedicated to the mission.
Maybe I’m just fortunate to be a part of a new generation of venture investors. Maybe it’s because I am outside the echo chamber of Sand Hill Road. Or maybe it’s because the experience that I’ve had actually represents the rule, while the exception is the lazy asshole VC who gives us all a bad name. I really don’t know.
What I do know is that I find it incredibly offensive to read vitriolic rhetoric such as that found in Andy Dunn’s post endearingly entitled “Dear Dumb VC”. Sadly, VC hating is en vogue; those who espouse it are sometimes revered as heroes, and VCs who vocally object are sometimes vilified as ignorant, out of touch or worse.
But I do object!
Not to content of the criticisms - many of which are legitimate (see Mark Suster’s comprehensive response) - but to the tone with which it is conveyed and to the simplistic use of generalization that causally disregards the individuals involved.
Being a VC is a great job. I wake up every day and am blessed with the responsibility to interact with brilliant and creative innovators who desperately want to impact the world. I have the opportunity to work with and watch companies grow from nothing more than a dream to a tangible reality. I have a front row seat from which to view the bleeding edge of innovation.
But please, don’t hate me because I my love job.
Succeeding as a VC is incredibly difficult. Any way you slice the data, the fact is that the majority of venture firms underperform. Success in our industry requires a combination of intellect, experience and a boatload of luck. It’s not good enough to invest in a bunch ‘good’ companies; the structural dynamics of the venture business demand that I invest in ‘home runs’ (think half-billion $+ outcomes) in order to generate the 3x+ return on capital that will make make our fund top quartile and provide us with the opportunity to raise new funds and continue as a going concern. With only a few opportunities to invest in companies that have the potential to go from zero to gargantuan, the odds are incredibly stacked against me. This is not a challenge or responsibility easily taken for granted.
Confronting these odds, I work extremely hard, working very closely with eight companies and putting in tremendous effort trying to find the next eight. This is not a part time gig nor does it begin and end with daylight office hours. I do not own a boat nor do I take the month of August off.
So please, don’t hate me as the rich and lazy entitled VC.
I am also self aware of my place in the value chain. I am not the entrepreneur. I am not the innovator and am not the operator. I do not create nor do I build. Therefore, I do not deserve the credit for a company’s success. I am not the hero and world changer; that title belongs to the entrepreneur.
But I am also not useless. I enable with a check book; assist with my own sweat, intellect, experience and relationships; support with extreme honesty and empathy. I do whatever I can, to the best of my ability, to help our companies. Sometimes I succeed in being more helpful than hurtful and sometimes I fail, but I always try my best.
So please, don’t hate me for stealing your credit.
I do what I do because I am obsessed with technology entrepreneurship and have chosen to spend my life to working with people who are building companies that change the world. My lot is tied to these people. I have no reason to apologize for contributing to this effort from my vantage point as a VC because I love what I do, work my ass off, understand my role and appreciate its limitations.
My grandmother used to always remind me that there is always room for improvement. Venture investors both individually and collectively are not immune to this sage truism. Despite our imperfections, it saddens me to have to write a post like this - defending my professional existence against those who view me as dumb and worthless. I hope that collectively we can move beyond such petty slander and engage in respectful discourse.
Years ago I wrote a post entitled Humility and Hubris. I’ll close with quote from it:
We hold ourselves to a higher standard in our industry, the world of early stage entrepreneurship. We come to work every day with unbridled passion and profound sense of purpose - we are changing the world for the better…The entrepreneurship eco-system is blessed with incredibly vibrant and transparent discourse. We are all entitled to strong, well reasoned and experience-informed positions, but let’s focus on making the conversation positive by respectfully expressing opinions, engaging in open-minded dialogue and injecting humility into our interactions.
The world of healthcare is undergoing massive transformation. Powerful mobile devices provide us immediate access to our personal health information as well as the ability to interact directly with our health service providers. An emerging suite of connected hardware is empowering a wave of new ‘smart’ health products that interact with the broader connected network. And data captured from these ‘smart’ devices is being leveraged to enrich user experiences and optimize health outcomes.
With these concepts in mind, I am extremely excited to announce our lead investment in Kinsa. Kinsa sits at the epicenter of the mobile health, connected device and big data megatrends. Kinsa’s overarching mission is to create a real-time map of human health in order to track the spread of communicable disease in real-time and enable interventions to stop it. The Company’s first product is a re-invention of the world’s most widely used medical device: the thermometer.
The Kinsa Smart Thermometer qualitatively changes the way taking your temperature impacts your understanding of your health condition. There are three principal benefits:
- Enriched experience - in addition to the Smart Thermometer, Kinsa is releasing an accompanying mobile app that allows you to input additional symptom information which helps users better identify their ailment and the most effective treatment options.
- Comprehensive data - instead of a static and silod data point (the temperature reading), the Smart Thermometer gathers all sorts of ancillary data directly from sensors built into the mobile device as well as data inputed by users themselves (symptoms). This data provides users and medical practitioners with a more complete picture of your health condition to optimize treatment.
- Global view - by connecting to the broader connected network, Kinsa anonymously aggregates macro health environment information to build a real-time map of human health that can be used at the local level or more broadly.
Taken together, Kinsa is providing individuals an enriched view of their own health condition as well as the macro health environment with which they interact. In doing so it unlocks a new paradigm for real-time health monitoring with far reaching implications for personal and public health.
Kinsa is presenting at the Mobile DEMO conference today and is launching an IndeiGoGo fundraising campaign to spread awareness and find early adopters interested in being at the forefront of this exciting new paradigm. Please check out their page and support their effort to do well by doing good.
Under the leadership of our awesome community manager intern, Adrian Grant, we are happy to launch our (alpha) startup resource portal. Adrian wrote a nice post describing its intention and vision over on our blog at iaventures.com. I’ve reposted the text here:
Despite the lowered playing field – thanks Moore’s Law, blogs, and open source hard/software - there’s still a gap between freely available tools and what industry professionals utilize. This variance – or arbitrage opportunity if you will – was the impetus behind us spending the last few months creating a Resource portal. In true lean fashion, we’re launching with some basic best practice materials in hopes of expanding and iterating based on your feedback.
But why launch with templates? Well there have been some great discussions around board packages and investor updates. As early-stage investors we too often find ourselves having to do the delicate dance of extracting data from startups without impeding their momentum. In some ways board meetings and investor updates are analogous to a pit stop in racing. Startups are moving hundreds of miles per hour, yet we (investors) ask them to stop once in awhile to refuel and discuss strategy.
While not as exciting as the actual race, entrepreneurs and investors tend to agree that these touch points are a crucial part of performing well. However, issues often arise when investors have entrepreneurs spinning their wheels doing deep dives into their businesses to unearth superfluous reports that don’t have a productive purpose and causes entrepreneurs to lose focus on what’s really important.
So we’ve pieced together some frameworks that we feel represents a nice balance of conveying meaningful information for stakeholders (investors or otherwise) while being simple enough for entrepreneurs to quickly compile. Please note that these are guides, meant to be modified, with items added/removed as needed.
Access to materials is just one side of the coin however, as nothing-quite substitutes for hands-on experience or learning from experienced people. In the past, like most VC’s, we’ve internally shared great articles to enable our portfolio to learn from others in the trenches. These articles have remained siloed, until now. That’s why in addition to best practice materials, the Resource portal also contains a Library of curated articles we think are must-reads for startups aiming to get a leg up on competitors/incumbents.
You can download these resources, along with browsing our curated library of interesting reads at http://resources.iaventures.com/. This is by and for the startup community so we’d love to hear your thoughts. Please send them to firstname.lastname@example.org or tweet @iaventures.
The Series A Crunch is real.
But while most of the commentary has focused on the past few years of funding ‘bad’ companies, I’ve actually seen a different flavor of this market trend. In fact, I’ve seen a large number of *good* companies, some really good, that have become victims of the Crunch.
Let me upack this a bit.
One of the purported benefits of raising capital from seed focused investors (angels and seed stage VCs) is the implicit flexibility to achieve good outcomes for all constituents with smaller exits (i.e. low-mid 10s of millions of dollars). A consequence of this (intended or otherwise) is that many ‘good’ companies with reasonable pathways to low- to mid- double digit million dollar outcomes were funded over the past few years. I describe these companies as ‘good’ because they generally have smart, thoughtful teams that are solving legitimate pain points for real markets of customers.
The challenge is that while starting a company is less capital intensive than ever, scaling a company still requires lots of coin. As a result, even companies targeting lower range outcomes generally need to raise more than just seed capital to achieve their goals.
And therein lies the structural capitalization problem for many companies recently funded with seed capital. Many of these companies took capital from seed focused investors that lack the capacity to finance the requisite 5-10mm+ of Series A/B capital necessary to bring a product to market and build a company of substantive value. At the same time, these companies that were reasonably attractive to seed investors who were comfortable with lower range outcomes fail to meet the massive market opportunity thresholds that are required by more traditional VC investors.
Unfortunately, structural market realities force many of these companies into a bad situation between a rock and a hard place - they’ve raised capital and have achieved some early product or market traction, but still require more capital to create real value and are boxed out from raising it because of the structural requirements of the traditional venture market.
Does this catch-22 represent an opportunity for new types of liquidity to enter the market and provide critical follow-on financing for companies targeting lower range opportunities?
Maybe. But I’m skeptical that this market dynamic will lead to new pools of capital. There are two major challenges that I see:
- Smaller exit opportunities does not necessarily translate into less risky ventures. There are many markets in which risk and reward are directly and inversely proportional; but in the world of early stage startups, reward is often directly and proportionately linked to the specific size of the target market and does not necessarily imply more or less risk. Series A companies are still fraught with tremendous product, market and execution risk, and as a rule of thumb, investors prefer to accept these risks when the reward for success is massive. When the potential upside is perceived as limited, accepting these prevalent risks becomes a less attractive trade.
- Despite the highly publicized evolution of the venture business (shift to seed, venture platforms, etc), what has not changed is the fundamentals of venture math: many companies will fail, some percentage will return a marginal amount, and the vast majority of portfolio gains will derive from a tiny proportion of home runs. Rarely is it clear at the Series A stage which companies will represent the big winners, and as a result, VCs need to make sure that all of their Series A checks, at very least, have reasonable home run potential.
The fact of the matter is that investing sizable capital beyond the Seed stage requires a fund of scale (for shits and giggles, let’s say $50mm on the low end, though more realistically it is probably multiples of that #), meaning that these funds need to raise capital from traditional venture LPs. Given the challenges I note above, I have a difficult time imagining experienced LPs allocating capital to new strategies that target lower range market opportunities - the risk/reward and venture math just don’t seem to add up.
So what does this all mean?
Well, I’m not really sure…but I have a few pieces of advice to offer companies in this zone:
- If you are raising follow-on capital right now, do everything in your power to tell a realistic and convincing story that the market opportunity you are pursuing is massive.
- If you are receiving push back on your story, extend runway as far as possible and become laser focused on generating cash flow to organically grow the business. Fight your ass off to become cash flow positive, and in doing so, earn the right to control your own destiny.
- If it is clear that you need more capital, seriously consider a seed-extension or small Series A at a marginal bump up in value (or even a down-round). Yes, you will likely be further along than most seed stage companies. Yes, you will have built a functional product with early market traction - generally milestones meriting normal Series A consideration. And yes, this approach will be meaningfully dilutive. But if you keep pricing down enough you may be able to attract good venture capital by offering an attractive risk/reward balance. And even if you are able to raise capital successfully, revert to #2 above for your game plan once you have the money safely in your bank account.
My colleague Jesse introduced me to a very cool new company called Silvercar (read more about it here). Silvercar, is building a fleet of ‘smart’ rental cars. It uses your mobile device to identify the renter and unlock the door, personalize the in-car preferences (radio, mapping calender itinerary info to GPS, etc.), streamline the pickup and drop-off process (no waiting in line at stupid rental counter), and automatically make payments (including responsible gas refill charges).
Silvercar is a great example of a wave of emerging innovation that we are seeing penetrating all sorts of old markets with mobile-centric, stream-lined and hyper functional ‘uber-like’ experiences. This wave leverages the hyper-connectivity of physical things and affords a simple, efficient and intelligent user experience through the mobile device (as well as through the desktop, though less interestingly and probably less functionally important).
What I love about this type of innovation is how it transcends the purely digital world and literally touches our physical lives - we rent cars, we monitor the health of our body, we adjust the temperature in our homes. This trend lies at the intersection of extreme mobile connectivity and the promise of “Internet of Things”; a world in which our physical objects are “smart” - not only capturing, analyzing and responding to data, but also connecting to one another accepting input from other connected objects and transmitting output back to the connected network.
Incredibly enough, this is no longer the future, but the world we now live in today.
Quick poll -
What everyday physical, real-world experiences would like to see improved w/uber-like simplicity and efficiency leveraging our mobile devices?
Often times in our line of work (or any investment area for that matter), there is a sense that making investments is what our business is all about. Investments are sexy. Investments receive lots of attention. Investments make the participants feel good. Investments are entered into with the naive optimism of the possible. We think about what could be, the bright future, the lives we impact, the industries transformed. We think about building a big company with tons of employees and legions of adoring customers. We think about making boat loads of money. We think about changing the world.
And then reality sinks in. Tech is hard to build. Team takes longer to hire than anticipated. Partners aren’t living up to expectation. Operational challenges are hindering execution. Product release gets a lukewarm response. Competition is heating up. The economy sucks. Cash is running a bit too tight for comfort. Internal tensions surface.
It’s during these trying times while experiencing the real shit that inevitably goes down along the journey that I’ve come to internalize that our business is not about making investments, it’s about building companies; and if there is anything that I’ve learned to appreciate over the last three years it’s that building companies from a standing start of nothing is damn damn hard. In our business, making the investment is the easy part. Building something productive and of tangible value is the hard part. Not a single day goes by that I don’t think about the sage words my father-in-law once shared with me: “deploying capital is really easy; it’s getting it back that’s hard.”
That is why today I am so excited for my friend, former roommate, and portfolio CEO Eli Portnoy and his co-founder and partner John Hinnegen who announced that their company Thinknear has been bought by Telenav. Eli and John are exemplary entrepreneurs, having started the Company two years ago with one idea, recognizing an unforeseen pain through their own early experience, pivoting into a completely new model based upon that experience, and nailing execution so much so that they became invaluable to their strategic partner who felt compelled to buy the Company outright. It was not an easy ride by any stretch, but it was always purposeful, educational, exciting and fun. I am blessed to have had a front row seat as a board member watching Eli, John and team build a truly impactful company that will drive value creation for years to come.
While I imagine every exit feels pretty good, this one will always hold a special place in my heart. First and foremost, it is our first exit at IA Ventures representing a major milestone in the life of our young fund. Second, it is the first exit that I have been a part of, the experience of which has been incredibly valuable to my growth as a young VC. And finally, it is incredibly special that this milestone transaction was made possible by someone whom I’ve known as a close friend since my first day of college more than 12 years ago when I walked into the dorm room that Eli and I shared for the next year and a half.
Congrats to Eli, John and the entire Thinknear team on a job incredibly well done. As us Hebrews like to say; may you go from strength to strength!
We’re excited to announce that we are hiring a General Manager.
Since launching IA Ventures nearly three years ago, we have lived by the ethos that we are a start-up investing in start-ups. Like the companies we invest in, we constantly look internally at what we’re doing well and where we can improve to enhance the product that we put forth in market. As part of this effort, we believe there is an important opportunity to build out and improve the platform of products and services we offer our portfolio companies and the broader startup and data communities at large.
What you’ll do:
The GM will own the platform, products, and services for our customer — the startups we invest in. This includes creating reusable best practice resources, fostering connections between functional disciplines (marketing, sales, finance, etc) across the portfolio, and organizing events like our annual Founders meetup. Ultimately though, it is up to the GM to identify and implement those solutions that best serve the needs of our portfolio. The value the GM creates for the companies is the primary measure of success.
Since it is critical that the GM deeply understand our companies and their needs, the GM will actively participate in investment team meetings and be expected to contribute to the conversation about potential investments and existing portfolio companies. While the principal focus of this position will be working directly with the existing portfolio, the GM will also be charged with a secondary responsibility of facilitating support for and engagement with the broader tech community.
Who you are:
While we have some broad ideas to kickstart the platform, the GM will think and act like an entrepreneur - experimenting with ideas, releasing early and often, learning from scoped tests, and iterating and improving the suite of products and services. The successful candidate will necessarily live and breathe startups with a deep understanding of the ecosystem, be an avid user of emerging products, and have substantive technical acumen with capacity to either directly build or manage the buildout of potential products.
How you’ll stand out:
- A demonstrated passion for start-ups and tech. Start-up operating experience is a plus
- Net native - you should be an active user of emerging technologies
- Extremely creative and entrepreneurial
- Exceptional organizational and execution skills
- Strong interpersonal skills
- Engineering skills are a plus. At a minimum, you must be demonstrably tech savvy
Please apply with this link before Thursday, November 1st at 11:59pm Eastern. We will reply back to you with next steps by the following Friday the 9th.
There are lots of reasons to go to business school -
- broad education of business fundamentals
- great network of future movers and shakers
- piece of (expensive) paper that will help you land a good job down the road
- opportunity to reset and/or pivot your career
- break from the ‘real world’ to enjoy student life again
While the aforementioned are probably the most commonly sited reasons to go back to school, my personal experience highlighted something that was not immediately obvious when I entered Columbia in the fall of 2007. Business school was a sandbox to experiment with and explore different real world careers.
I had two transformational experiences as a student, both of which were internships, that shaped the path I’ve taken since graduating and expect to continue upon for the rest of my life.
My first internship between first and second year was at boutique investment bank called Allen and Company. Allen and Co. is a very unique place. While it is extremely well known and respected within the tech and media worlds (maybe you have heard of the Sun Valley Conference hosted by the firm each summer), it somehow remains extremely secretive and flies under the radar with the general public (they don’t even have a website!). As a merchant bank that offers top tier advisory work in tech and media AND principally invests in many of the most exciting tech startups, Allen was a great place to spend the summer given my background in finance and interest in early stage investing and tech startups. If there was ever a firm in ‘traditional finance’ that would fit me well, it would be Allen and Co. And yet, I walked away from that summer realizing more than ever that traditional finance would never fulfill my personal and professional aspirations. I didn’t particularly enjoy the work functions and still found myself feeling too far removed from impacting the outcome of the companies we worked with. This realization was not easy to accept - emotionally and psychologically - as it meant risking the opportunity to make boatloads of money and walking away from whatever it is that makes finance kinda sexy. At the end of the day, I was just not inspired by the work and came to grips with the personal implications of it over that summer.
Fortunately, I had the wonderful opportunity to meet Roger Ehrenberg early into my second year at school. I had actually stumbled upon Roger’s blog while interning at Allen and Co. (I believe it was this awesome post that hooked me) and while perusing Roger’s site noticed that he had amassed quite an impressive portfolio of angel investments. As head of the venture capital club at CBS, I invited Roger to participate on a venture panel on campus where I proceeded to meet Roger and attempt to pimp myself out as his personal intern. Roger, of course, summarily dismissed me, but not before making a critical introduction on my behalf that changed my life.
It just so happened that Roger was about to lead a seed round for a very interesting early stage company that had just moved to NYC. (Keep in mind 2008 was still a time when angel investors could generally lead seed round, price and structure deals, take board seats, etc. This is less common today as there is more institutional capital focused on the Seed stage). The company had a brilliant founder and a product in market with paying customers, but in reality there was no ‘company’ as at that point it was literally one man show (yes, no co-founders or employees) with no infrastructure that could possibly constitute a real company. Roger suggested I meet the founder and see if there was an opportunity to work together. The following week the founder and I met for coffee and hit it off, leading to my second transformational experience during business school. I spent the next five months interning for this company. I was tasked with everything from setting up the basic operational infrastructure to building the first usable financial model to crafting our first board deck to conducting competitive research to making early BD calls to thinking through our hiring and team buildout strategy. I was officially an intern and yet found myself actively participating in our first board meeting! I was the CEOs right hand man for those five months and it was awesome. I felt invigorated and excited. And I knew that I had found my calling.
[The rest of the story is that after insufferably nagging Roger for a meeting, we finally met for a lunch at which I proposed ways to bring some sanity and organization into his angel investing life as well as ways in which I could serve as an operational and business resource to his portfolio of early stage companies (as I had done during my internship). My proposal serendipitously coincided with Roger’s own contemplation of how he could formalize his efforts with more structure and possibly a fund down the road. Our lunch led to more discussions, which eventually led to contract work where I split my time heading up operations and finance for a company we were incubating as well as helping Roger with his angel investing. I moved onto the investment side full time when we launched IA Ventures in January of 2010.]
At the end of the day, business school afforded me the opportunity to pursue two awesome, but very different, real world experiences in a safe and scoped way. The first gave me conviction to move away from a path that I subconsciously struggled to abandon, while the second solidified my passion for building transformative tech companies and gave me the courage to pursue that path. While I’m also grateful for the other benefits of business school, it were these two particular experiences that fundamentally changed my life.
In my post yesterday, It Takes $30mm To Train A VC, I commented:
Let’s debunk one notion immediately: being a successful entrepreneur (or even a failed entrepreneur) is absolutely not a criterion for being a good VC. The data is extremely clear on this – there is little correlation between the best VCs and past entrepreneurial experience. That is not to say that entrepreneurial experience is not an excellent segway into VC, it’s just not a required segway.
There was some follow up to this statement in the comment section which prompted me to further expand on this issue.
Irrespective of the data (which speaks for itself), the rationale behind this statement is also important. Being an investor is quite different from being an operator. There are definitely overlapping skills between the two professions, but they don’t map one to one. In reality, many professions impart some of the skills necessary to be an investor, some more than others, but none give you the full exposure to it all.
Equally important, there are simply different types of investors out there who bring different value to the table. Some bring operational expertise, some deep technical and product understanding, and some are killer deal people who will help you land a major hire, close a big BD deal or raise your next round. There is no one-size-fits-all box that we can fit all good investors into.
Which leads to another important point. While monetary capital may be a fungible commodity, the human capital behind the money is certainly not. Entrepreneurs need to be extremely thoughtful about their needs and recruit people around the table who complement them and add incremental value to the company. This is the same exercise any operator goes through when you identify hiring needs within a company or think through the characteristics, skills and experience you want from your independent board member.
Jeff Bussgang once told me ‘it takes $30mm to train a VC’.
I’ve been thinking about this comment a lot over the past few days while following two very interesting blog posts from my friend and colleague, Jerry Neumann. As is often the case, Jerry cuts straight to the heart of an important issue, this time regarding the issue of training young VCs. In his posts (see here and here), Jerry postulates that the venture industry does a piss poor job of training new VCs, arguing:
One of the odd things about venture is the lack of seriousness about what we do. Venture is the only professional services business which does not think training its employees is a good idea. Witness Brad Feld’s comment—ironically, in the textbook that Kauffman asks its Fellows to read—“We don’t intend to hire associates and train them; [when we retire] we are just going to shut shop and go home. Done!” This après moi le déluge attitude means that our industry continues to be half-staffed by people who half know the job. I am constantly amazed at the crazy things other angels do, usually sins of omission, and VCs I know express the same sentiment about other VCs. In no other profession do they expect people to just show up and do the job well. In our profession many show up and do the job poorly. We all suffer. If we care about innovation—not just making money—we should be training people how to invest in and manage investments in startups.
Both Brad Feld and Fred Wilson said they did not have junior VCs because they did not want to burden entrepreneurs with inexperienced VCs. This makes a ton of sense. But, then, where should experienced VCs come from? Andy Weissman comments that perhaps VCs are best trained by being entrepreneurs.
And finally, Jerry concludes:
So if specialized knowledge is needed, how to generate it? Kauffman has their Fellows program to train VCs. Andy thinks being an entrepreneur is the best training. I disagree with both. I think only doing the job teaches the job. And since no one wants anyone doing the job who doesn’t know the job, this means a long apprenticeship. But the best VCs seem to not be interested in having apprentices. So, then what?
In my opinion, if we want better trained VCs, then either the culture has to change so VCs feel an obligation to train the next generation, even though it costs them money, or the LPs need to start looking out for their future returns in addition to their present ones and compel VCs to have a bench.
As a young VC learning the business from the inside, this issue is front and center in my life.
There are a number of important questions embedded in this discussion:
- What are the characteristics of a good VC?
- Can these characteristics be trained?
- If so, how should they be trained?
Before going further, I will broadly qualify that there are no right answers to these questions. If there is one thing I have learned over the past three years it is that there is rarely a right answer for anything in venture – the degrees of freedom in this business are too massive to isolate specific success variables in any meaningful way. There are simply many different ways of doing things, each with their own costs and benefits. And in case you don’t believe me, please tell me which of the following venture models is ‘right’?
- SV Angel: seed, small checks, broad basket portfolio approach
- First Round Capital: seed, hybrid check size, hybrid concentrated/broad basket portfolio approach
- Union Square Ventures: early stage, larger checks, concentrated portfolio
With the qualifier above noted, let’s debunk one notion immediately: being a successful entrepreneur (or even a failed entrepreneur) is absolutely not a criterion for being a good VC. The data is extremely clear on this – there is little correlation between the best VCs and past entrepreneurial experience. That is not to say that entrepreneurial experience is not an excellent segway into VC, it’s just not a required segway.
So getting back to our three questions: what are the characteristics of a good VC? Can these be trained? And if so, how should they be trained?
My hypothesis is that there are certain innate characteristics that are not only table stakes to play the game, but represent the intangible factors that distinguish the good from the great. These characteristics include:
- Honesty and integrity
- Intuition about people, markets and products (in that order)
- Intellect to problem solve and think critically about risk and opportunity
- Empathy for all stakeholders
- Personality to build enduring relationships
- Strategic mind
On the one hand, I don’t believe that it is possible to train these characteristics – you either have them or you don’t. Yet, on the other hand, I do believe that some of these – most specifically intuition, empathy and a strategic mind – can be refined and honed over time through life experience.
In addition to the innate characteristics, there is a second class of VC characteristics that are mostly acquired through traditional learning and on the job training. These include:
- Product expertise
- Domain and market expertise
- Deal making skills
- Network of relationships
- Financial savvy
There are many ways to acquire these characteristics – entrepreneurial experience, working in industry, learning on the job as a junior VC (although this won’t work for product), etc. It is tough to pinpoint a ‘best’ path, as each path teaches different and relevant skills. As Jerry notes:
The best—in fact almost all—VCs have historically come from one of five places: VC, banking, law, technology firm management, or journalism…Each of these paths teaches people some of the necessary skills to be a venture capitalist, but not all of them.
To be clear, while you can learn many of these acquired characteristics, I do not mean to imply that learning them will make you good or great at them. The degree to which you are good at something is generally a function of both your training and your natural born capacities. Different people have different natural strengths – some have natural product vision, others are killer deal people. No matter how much I train, I will never be as good at throwing a ball into a circular hoop as Michael Jordan. My point is not to diminish the importance of innate disposition, but rather to emphasize that these skills and characteristics more readily lend themselves to be improved through traditional learning methods in contrast to the uniquely innate characteristics described above.
Finally, I believe there are certain VC characteristics that are only acquired through direct life experience:
- Situational experience
- Cyclical market experience
In a blog post I wrote after meeting with Fred Wilson in November 2010, I commented:
While there are certain traits common to all successful investors - intellect, intuition and disposition - these are merely necessary, but insufficient, conditions to being great. Venture investing (like many investment professions) is heavily informed by pattern recognition, and for better or worse, pattern recognition is naturally derivative of experience.
The reality is that no amount of intellect, intuition or disposition can fully prepare a young VC to manage a dysfunctional board, bite the difficult bullet of a down round financing, push through painful but necessary management changes, or navigate macro economic cycles.
Given the framework laid out above, where does this all leave us with respect to the issue of training new VCs?
It is clear to me that there is a fundamental need to train young VCs by giving them access to the experiences necessary to grow into great venture investors. Part of that education can come through on the job training (both in and out of VC) and supplementary learning initiatives (e.g. individual learning, Kauffman Program, etc), but a massive part can only be acquired through the passage of time and living through various situations and scenarios. To me, the key to navigating learning through life experience is mentorship. As summarized in my Fred Wilson blog post:
In the absence of years of experience, there is one absolutely critical way to mitigate the risks of inexperience while young investors learn on the job - mentorship. As Fred has advocated time and again on his blog, the venture business is best learned through apprenticeship (at the very least this is true for those who are career VCs and not transplants from successful entrepreneurial careers). No training program in the world can prepare one to be a great VC precisely because experience is such a principal component. Having the opportunity to lean on and glean from the experience of those who have walked the walk is invaluable. It is not a ‘nice to have’, but rather a ‘need to have’.
While some firms have made the conscious decision not to train young VCs (I get it and respect the choice), many have thankfully chosen to mentor new entrants to our industry and provide them with the fertile learning ground upon which to grow into impactful venture investors.
Just last week, FRC announced that Phin Barnes and Kent Goldman had been promoted from Principal to Partner. Shortly prior, Mo Koyfman was promoted to Partner at Spark Capital. Eric Weisen of RRE was promoted from Principal to Partner two years ago. There are countless other strong young VCs out there that are making a huge positive impact – Adam Ludwin (RRE), Marissa Campise (Venrock), Christina Caciappo (USV), Andrew Parker (Spark), Matt Witheiler (Flybridge), Charlie O’Donell (Brooklyn Bridge Ventures), to name just a few that I am personally close with (and there are many many others not mentioned). These are a few examples of individuals who have grown and matured in the venture industry over the years. Only time will tell if they ultimately become great VCs, but early indications are promising that this crew (and others) represent a bright future for our industry.