It’s not easy but there a number of ways to get into the venture capital business. Some grow up in it, paying their dues in an almost apprenticeship model then over the years they take on more and more responsibility at the firm as their experience grows.
Some are were experienced entrepreneurs or operators and then make the switch to venture capital.
Some start their own firms – while others join established firms.
There isn’t any right or wrong way to do it. The data proves that there isn’t much correlation in whether you need or don’t need startup experience prior to make the investment.
I was talking to an experienced successful venture capitalist the other day. He suggested the best VCs are doing this as a second career vs a first career.
The theory goes like this: if you have had a successful (VC or operational) career (competitive, smart & lucky) you can have the confidence to be a good VC. You are willing to make risky, bold investments and not ride on momentum deals and the like. You are willing to have an investment blow up in your face.
If you are a VC early in your career and haven’t had past success, then you run the risk of making “safe investments” (protect the downside, consider exits early and often and try to putting your own career in front of the firm’s objectives).
The problem with the “safe strategy” is that it doesn’t work for early stage VC. Early stage venture requires substantial risk because there will be quite a number of losses in the portfolio and so the winners need to be outsized. The other problem with safe is that these things are rarely safe anyway.
I see this syndrome of “career fist, company second” in big companies as well. It rarely happens in a startup because everyone is fighting for their lives together. But in big companies, protecting ones turf becomes cancer. Anytime someone puts their own interest in front of the company interest problems arise.
Coming back to the VC. I believe the best venture firms have the culture to allow failed investments where they support the founders but also the investor that led the investment as well.
The first investment I led at Spark was quite lucky/fortuntae. We invested in ThePlatform in 2005. Six months later, Comcast bought the company and we made 3x our capital. The second investment I made turned out to be a failed investment but I learned a lot of lessons and our partnership supported me through the whole thing.
Thats the key. Your company needs to support each other so that the individuals interest doesn’t come in front of the interest of the company. If you can make that part of the culture and the people you hire, then you’ve done good work.