Читать книгу The Business of Venture Capital - Mahendra Ramsinghani - Страница 24

3 Attributes of Successful VCs

Success in the world of investing boils down to the ability to pick “good” investments. “You have to become a great buyer,” says Mike Maples of Floodgate Fund. Yet the ability to pick the good investments sounds deceptively easy, as any fool can write a check. And we typically realize our folly after making a lot of bad investments. Or as they say, good judgment comes from experience, and experience comes from bad judgment.

The primary goal for any venture capitalist is to create value —for their entrepreneurs and their fund investors. “We are in the business of helping a company achieve critical path milestones. Being able to determine what is critical path is a matter of survival — our job is to be insanely rigorous about what the critical path is.” A definitive characteristic about a venture capitalist is being analytical about these milestones, says James Bryer, former chairman, National Venture Capital Association.

Successful venture capitalists have an entrepreneurial mindset, the ability to understand the basics of value creation. Yet, the background of some of the leading venture capitalists demonstrates no clear pattern. You could have operational expertise. Or not. To become better at the art of investing, here are a few attributes.

STRONG AWARENESS OF TECH TRENDS

As any candidate who aspires to be a VC someday, new entrants can bring new insights in an ever-evolving technology world. Where are the new hidden opportunities? How best can we gain access to them? The only way you would be able to add value to the venture firm is if you live, breathe, and surf on the edge of those technology waves. As a newly minted investor, try to build a list of 10 key technology trends that will impact our society over the next decade. Identify three to five trends that appeal to you, and in which you might have an edge. The best way to validate your thinking is to seek some guidance from seasoned investors. Never hesitate to send a cold email, but make it respectful and well-crafted. “I am always happy to help — it makes it easier when I get a thoughtful request,” says Brad Feld, of Foundry Group. But know that most VCs are spread very thin on time. To make a strong impact, a deep and a thorough level of preparation is essential.

When I interviewed Terry McGuire of Polaris Ventures, a VC of 25 years, he said, “I like it when a candidate says, why did you invest in this company as opposed to that one? Not only did you check out our website but combined that with an awareness of technology waves and other opportunities therein.” So while you can get in the door of a VC, what will keep you there is your level of thinking, preparation, discipline, and homework.

“A lot of good venture capitalists have ‘situational awareness’ — they can walk into just about any kind of meeting and, in about five minutes, figure out who's doing what to whom and exactly what the issues are, sort of cut through it and figure out what's going on. You can look at a given situation and project its trajectory reasonably well,” says James R. Swartz, formerly of Accel Partners. “You need to build a frame of reference by which to judge people and to judge opportunities and to be able to judge markets and what's going on in the economy,” says Reid Dennis, founder of Institutional Venture Partners.

Christopher Rizik, a former VC who now manages Renaissance Venture Fund, a fund of funds (FoF), says, “Have a good sense of the world around you and how it is changing. After all, we put money behind ideas that change the world — the demographic, technological — unfilled needs. You have to be open and curious to look out into the future.”

ABILITY TO PICK WINNERS

Entrepreneurial expertise matters, but not as much. What matters is the value you create. Venture capitalists love it when a potential candidate has some entrepreneurial expertise — has built a product, attracted investor capital, managed teams, and led a company to an exit. Those very skills can sometimes become a handicap to an investor. One of the operator-turned-investors shared with me that the hardest part of their role is to stay on the sidelines. “It is not your role to be the CEO. I am always trying to run the company in proxy — jump in to save the company, steer it in the right direction or drive it faster.” There is indeed no predictor of success in VC, so don't let the lack of entrepreneurial experience stop you. Investment bankers, McKinsey consultants, lawyers, and journalists have made successful forays in the VC world. Your resume does not count anymore as much as value you may have created for founders. As the founders sing your praises, other founders will soon hear about it and start to call you, as opposed to you chasing opportunities all day. As you sift through these opportunities, becoming a good judge of human character and entrepreneurial abilities is critical. “We see a lot of executives who have a vision. Our job is to decide if it really is a vision or a hallucination,” one VC remarked. Once you can pick the winner, you have to move fast. “Having a great brand is a good start. Speed of decision-making is equally important,” says Jeff Clavier of Uncork VC. If you like the startup, you have to move quickly to seal the deal. If you don't, someone will gladly do so. This is a highly competitive business, especially in Silicon Valley.

OPTIMISM, PATIENCE, AND STABILITY

“You have to believe that the world can change … be optimistic and at the same time, be realistic and guarded, not romantic,” says Terry McGuire, co-founder, Polaris Ventures and Emeritus Chairman of National Venture Capital Association. “You've got to be a good listener. I find if the venture capitalist does all the talking, he doesn't learn very much about the people he's thinking about investing in. Very important to listen … and judge who looks and feels like they have the makings of making a real company. Eventually, it becomes instinct if you do it often enough,” says Paul “Pete” Bancroft, former CEO of Bessemer Securities, former chairman of National Venture Capital Association. It's a combination of innate skills (optimism, judgment, comfort in ambiguity) combined with real-world experience. “Good instinct, well honed by experience, makes a good venture capitalist. The most difficult part is dealing with uncertainty,” says C. Richard Kramlich, chairman and co-founder, New Enterprise Associates (NEA). Chris Rizik adds this:

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.