I’ve been grateful to be a venture capitalist for over three years at one of Canada’s largest VC funds. Over this (albeit short) tenure, I’ve seen many evolutions, while seeing a fair share of fads come and go. The best part of being in tech is that you see many iterations of product lifecycles (i.e. intro -> growth -> maturity) in hyper-speed. I’ve also had the pleasure of meeting super smart entrepreneurs and a fair share of young, smart professionals who aspire to be a VC someday. The lessons I’ve learned as a VC have helped me become a better person professionally and personally, and I cannot be more grateful. However, the journey is long and far from over – here are a few things I’ve learned and some of the resolutions I’ve made.
(1) Develop a “Lean Thesis”
Technology keeps evolving and by the time you hear of a trend, it's too late. With a little proactive work, it helps to be ahead of the trend. Find a segment of interest, research the crap out of it quickly, and find out who the winners will be and how they’re going to differentiate. Rinse and repeat. The pace of technological change is mind-boggling – new advances are made every day and the industry never stops. Not only that, but you’re also racing against other VCs to get to the next billion-dollar idea or team.
Right when you feel like you’ve missed out on the AI hype, cryptocurrencies come around with once in a lifetime gains. Then the market hits you with another billion-dollar segment. In hindsight, it all seems 20/20 – but hindsight means it's already too late. To be a good VC, you need to consistently research, analyze, meet people and develop your own opinions, using a mosaic of different thoughts and ideas.
The Lesson: Keep reading, keep learning – make your own curriculum and stick by it. Theory is only a part of the equation – practical experience goes a long way. If you want to learn about cryptocurrencies, mine some. If you want to learn about AI, teach yourself how to do it.
“One of the things I was looking for was the unlimited learning curve. I realized that while there is this subject-matter learning curve – trying to figure out what is next in SaaS or in Bitcoin blockchain – there is another that is steeper and much more interesting: How do you partner with a founder to help them achieve their potential? How do you evolve in that relationship, challenge them in the ways they need to be challenged, and support them in the necessary ways to achieve their vision?”– Tomasz Tunguz, Redpoint Ventures
(2) Be Skeptical and Challenge the Thesis
The biggest winners in this industry are the ones that can peel back the onion quickly and ask the right questions. When you’re in a pitch for 30-60 minutes, it’s easy to get enamored by the entrepreneur’s drive and their story. It’s a trait often seen in new hires at a VC fund – falling for the pitch without the time to do a their proper due diligence. On the flip side, with more experience comes more skepticism, having seen one or more great teams and ideas fail during their life as a VC.
Every idea has holes in it. Every team has a weakness. As one of my favourite VCs once told me, "There is no bargain in venture capital". A company that grows from nothing to $1M in revenue has challenges that are different than the one that is trying to grow from $10-$100M. Quickly finding the issues and mitigating factors is what makes the risk/reward much more tolerable.
The Lesson: Work hard, work smart and work fast. There is another VC or another 20-something year old entrepreneur, working harder and faster than you. Keep grinding.
(3) Play the Long Game
It’s not about IQ, but about EQ. As a VC, you meet many smart people that have left their stable, well-payed job to become entrepreneurs. Never rip through a company or idea in a rude manner, but treat it with respect. Don’t lie, but be professional and try to provide constructive criticism.
Say “no” when you mean it. Startups have a finite and burn-intensive lifespan. As a VC, you’re often tempted to say “maybe” – which is a “not right now” disguised as a “conditional yes” assuming the company breaks through a barrier or gets a great term sheet. It gives the entrepreneur false confidence without giving them the criticism they need to improve.
I’m not perfect by any means – I’ve often forgotten to respond to the odd entrepreneur because of some unexpected issue at a portfolio company or even a personal situation. Shit happens, but it’s no excuse. The key is to consistently work hard and play the long game – Brian Chesky’s AirBnB was rejected by many VCs, and is now worth over USD $30B. One VC even walked away from a coffee-shop meeting with Brian, mid-conversation, without even saying a single word.We live in a tech industry right now where rejection and failure is treated like a badge of merit.
The Lesson: You never know who will succeed and who won’t. Keep networking and respect the people around you as you foster long-term relationships. There is no better tool than having recurring dialogue with people smarter than you.