Over my career as a VC at Bay Partners, I’ve had many people ask me how to become a venture capitalist. In fact, my son is enjoying a great career in the field. It may appear that all you need to do is give money away to startup companies. On the contrary, this type of work requires passion, gumption, intense work ethic, never-give-up attitude and a stick-to-it-ness through all of the ups and downs.
Venture Capitalist is not a traditional job. You’re not working for a big company, it’s not a small business – this work is different. You need to be comfortable to take the path less-travelled to be successful.
You’ve got to have patience with small companies and multiple changes in strategy. If you think you are going to be a venture capitalist, you also have to mix in a bit-of-crazy with some of these qualities and be a risk-taker to be successful.
Most importantly, you are investing other people’s money and you need to be good at it. It’s not a good idea to lose other people’s money.
Although a lot of people assume that you need an MBA from a quality school, at Bay Partners, we often hire former founders or managers of smaller companies. Whether they were successful or not, a former founder tends to have a better sense of the real issues a company is facing.
Having an MBA is a bonus, but real-life experience is king. When I started my career, it was alongside three other first-time venture capitalist associates. They all had degrees from prestigious schools. I did not. What I had was a better understanding that we are in the business of people.
Failure is important in our world and I think that if you’ve had a failure in your career, it’s a good thing. I’ve had two failed venture-backed companies and a third startup that was just okay (return of capital). Just okay is not okay in the venture capital world. I fully believe that failure has a huge benefit for your perspective and skills.
Interviewing and hiring new associates is always a big task, but it can be even more so for a VC Firm. You may convince one partner that you are the right hire, but then you will need to talk to the rest of the partners and convince them. This can take as long as six months and sometimes longer. Stick with it!
Candidates that hang around will be top priority when we finally get around to hiring someone. It is such a daunting task to go through the hiring process that it often doesn’t get the priority it should – but it’s important.
Our priorities are the companies that we manage, and although finding the right people for the firm is important too, as the candidate you need to live with this dichotomy. This is a long process but the benefit is that the more time you spend in it, the more you learn about the firm and the partners.
When you get the job, you can’t be active enough. You must generate your own dealflow. You have to look at every resource to find the opportunity. It’s very competitive, you have to work your butt off to find a deal that makes sense.
You’ll have to get out on the road and have breakfasts, lunches, and dinners, attend conferences, go to all kinds of events, and interface with your fellow venture capitalists. You are basically working night and day to find deals. Then when you find that hot deal, you need to convince the entrepreneur that you are the right firm to give them money.
I did all kinds of crazy things to get people to take our investment. It was all about getting to know the entrepreneurs and for them to get to know and like me. I had to rollerblade through downtown Cambridge, Massachusetts for my first deal, even though I had never rollerbladed before. I put the skates on and I went from lamppost to lamppost without falling. At the end, the young entrepreneurs said, “Okay, you win. We’ll let you invest in our firm.”
Entrepreneurs have a lot of choices – so what are you offering the entrepreneurs and the team? Do you have strategic thinking skills, an understanding of sales, a technical background or the most important skill of all – people skills? You are selling your skills to the entrepreneur so focus on what you can offer.
Finding your strengths, seeing the landscape and having a clear idea of what to do from here is key to winning an investment opportunity. Essentially, the entrepreneurs have to like you and you have to have an offer that makes sense.
There’s a million stories about how you ultimately get the deal. Most of the time you get the job or the investment because they like you. My superpower is that I’m friendly and I’m often upon to help win the investment and sell the firm to the entrepreneur. Not all partners can do this, they may be great at technology but not strong at sales. Some will source an opportunity but maybe don’t have the ability to close the deal.
You will also need to think of yourself as a brand ambassador for your firm. What I’m really doing is making sure that people know that Bay Partners is right for them. I’m selling what Bay offers and how we can help to take a company to the next level.
So, you have a deal that you think is good and you want to get the deal through the firm. Once you get an entrepreneur’s confidence, you will likely need to get a senior partner’s approval for the deal. Make sure they know the opportunity, and also all of the resources (money and people) that will be required to make it a good deal. Do not take something to a partner’s meeting that hasn’t been vetted by at least one partner plus respected outside sources. This may be your only shot to get the deal approved.
Use this opportunity to learn from people with more experience than you. Watch how partners handle their dealflow. Learn from them and ask all the questions. Above all, be open, honest, friendly and people-oriented.
I often say that life as a venture capitalist is kind of like the US senate, you have a hard six year term and then you have to have success to get re-elected.
You’re only as good as your last deal. It could be five to six years (or even longer) before your first outcome. If you’re young and you’ve only done a deal or two, you will need to constantly sell and then regularly update each of your investments to your partners so that you have a better chance at approval for the next one.
The challenge is that you’ll have six or seven years of putting money out but not seeing any returns. Right now an IPO takes about eight to ten years. That‘s a long time without some successes that have been nurtured along the way. If you have a company that is doing well after six years, you’ll likely have future deals approved.
If you have two to three deals that are in the tank, however, it’s harder to get future deals approved. You can always reach out to senior partners and ask them to help out. Things often get better for a company that is not doing so well when a senior partner comes on board.