Who the hell is this guy? Thoughts on being a career VC

The other day, I got interviewed for Business Insider.  It was a good interview, save for that little vein that I had no idea was so prominently featured on the side of my head--but what's a bald guy to do?  At least it's not a weird fold in the back or a dent at the top.

Anyway, I was pretty happy about it, but then I got a note from a friend that said, "Don't sweat the haters."  I had no idea what he was talking about until I saw the comments:

"Am I the only one tired of hearing from/abt Charlie? All hat and no cattle as they say. He was a product guy for a start-up and his big claim to fame was organizing a bunch of local high-tech events. Really never managed anything of significant or built anything major."

"Charlie is a nice guy, but his company failed..."

"what has this guy done? Any success as an entrepreneur? How about as a VC? Just tired of people with no track record getting respect."

"He hasn't founded or built either a successful, let alone innovative company, and he hasn't raised $ to invest in those entrepreneurs. This guy has done nothing."

 

It was all stuff I've heard before--and nothing I haven't considered myself.  And you know what?  It's actually a fair point.   *If* you believe that a good venture capitalist should have launched their own company and exited, then I simply don't have that track record.  Of course, that would eliminate people like Fred Wilson, Mike Moritz, and Jim Breyer.  Fred has basically always been a VC, Mike was a reporter, and Jim worked in product marketing and management consulting.

Be that as it may, don't think I don't ask myself what I'm doing on various lists and getting into different events.  One year, when I was at the invite-only O'Reilly Foo Camp, I looked around at all of the great entrepreneurs there and wondered how I was fortunate enough to get an invite.  What did I do?

Do I also worry about being overexposed?  Surely--but then I realize how difficult it is to be an early stage VC in NYC.  We don't have a centralized ecosystem here, so finding the best companies is a function of getting yourself out there.  For every 5 haters on Business Insider, there's one startup out there that doesn't spend all their time reading the same stuff we do, and just happens to notice that video.  They feel like I might be a reasonable guy to talk to about startups and decide to get an intro to someone at First Round because of it.  I'm much more interested in that person than the trolls.  Trolls will troll.  There's nothing you can do about it.

Its interesting to think about the career history of the VCs mentioned above.  Nowadays, they have amazing track records to point to--Google, Facebook, Twitter--but what did their bios look like when they were about a year and a half into leading deals?  They would probably look not too much different than mine, I'd imagine.  You would see mostly unrealized investments, some of which had raised successful follow on rounds, but mostly too early to tell.  If I achieve 10% of the success of any of those three, I'll have a great career in this industry, and I hope that I will.  The point is, someone building a career in venture capital that doesn't include prior entrepreneurial success probably doesn't look like they have much to offer in the beginning.  I'm sure each of those guys got questioned by entrepreneurs as to why they should accept advice from them as opposed to the entrepreneurial veterans of the days who worked in VC. 

So how can a relatively junior VC hope to add any value to an investment and on a board--and is it enough value that you should have one on your board?  In other words, how do I answer the same questions the trolls asked for myself?

I hang my hat on these mitigating factors that I think make up for a relatively new investor's lack of exits, launches, etc:

1)  Have an investment philosophy.

Not being an investor for a long time doesn't necessarily mean you shouldn't have developed an investment thesis of some kind.  You can be a student of the market before anyone allows you to actually put money to work.   For me, while being able to lead a deal is something I'm less than two years into, I actually got trained as a traditional investor while at the GM Pension Fund--where we not only did public market investing, but also investments in funds, and directly into late stage companies.  I also co-led several secondary portfolio transactions where we bought pools of venture capital fund investments off of other investors when they were bailing from the asset class.  They did terrifically well, but it really did teach me a lot about fund strategy, interim performance of companies, how to play a particular sector, and the nature of risk and uncertainty.  These are things I systematically break down when I look at investments.  I'd imagine Mike Moritz, as a reporter, had to think about similar patterns of technology trends. 

It's like getting into the major leagues for the first time.  Facing live pitching is a new thing, but that's no excuse for not having an approach to hitting and studying up to face this particular pitcher.

2) Know what you know, and what you don't know

Working at First Round has been perfect for me, because I did get to experience raising an angel round, working off a small pool of capital, strugging to find those initial employees, and managing those small team dynamics--so I'm actually in my element here and can relate to the entrepreneurs I'm dealing with who are just trying to get stuff off the ground and find product/market fit.  I've never been at a company that is scaling up to $20 million in revenue, so I'm not about to tell someone how to do that.  As my colleague Phin mentioned the other day, there are two types of bad advice you can give--one is to give bad advice in an area you should know something about.  At least then you'd imagine that your advice isn't *that* bad because at least you've got some experience.  On the other hand, when you start weighing in on stuff you've never seen or done, that can be pretty dangerous because you have no idea what factors you're not taking into account.  That's why, as new rounds get raised in the companies I'm involved with, I'm a big advocate of the company rounding out boards with people who have been doing it for much longer than I have and have more experience taking companies to the next level.

3) Network, network, network.

I find it hilarious when someone says "his big claim to fame was organizing a bunch of local high-tech events" because if you're an entrepreneur and you need to hire a developer, marketer, etc., you want an investor with a large local network of potential hires.  If you're a junior VC, you're not going to have the best investment filter, nor the most experience--but you can definitely be a leader in your community and build a great network of potential hires and partners.  Nick Beim from Matrix sat down with me shortly after I joined First Round and we talked a lot about adding value to young companies.  He said the best thing you can do for a company as a board member at this stage is to help them make a great hire, and I tend to agree.  As a board member, you only touch the company a few times a week, and maybe see the company once or twice a month in person.  A great hire is going to be there everyday in the trenches.  So, if you're a junior VC, a great goal to have until you build out that big track record is to be able to look at a BD pipeline, and make some intros to partners, help fill some holes on the team, and help the company get some PR through your media contacts.  None of this requires the prerequisites of prior entrepreneurial exits or a 25 year career in venture. 

4) Companies should have a balanced set of investors and advisors

If you're a new company, getting the senior partner at a VC firm on your board feels great--and certainly makes for great PR, but how are they going to do with product feedback where you're trying to figure out how to get virality up or integrate more social features?  Some will do fine, but often times someone more junior is potentially closer to the target audience.  Having both voices around the table is credibly helpful--not to mention the fact that not all of the advice going to the company needs to be coming just from investors on the board.  Having a good independent board member from your industry, or helpful advisors with relevent experience goes a long way.  In just the same way that not every CEO is strong in every category, I worry less about my lack of entrepreneurial success or long venture tenure when I have the support of experience partners at First Round or our co-investors. 

5 Be a student of the game

Have you ever noticed that many of the best baseball managers--Tony LaRussa, Bobby Cox, Sparky Anderson, Tommy Lasorda--weren't necessarily the best players.  They were all great observers of the game and learned a lot over their long careers. 

I've had the good fortune of working for some of the top investors in the field--from my team at the GM Pension Fund which was one of the most sophisticated and experienced venture capital LPs, to Union Square Ventures, to First Round. 

As a junior investor, you have to be a sponge for information--and instead of trying to impress everyone with the deals you bring in or your investment insight, try to figure out what the best performers are doing.  You should try and understand why your peers think the way they do about deals, spaces, and teams. 

So basically, no, I don't have a 25 year history of investment exits and no I haven't launched a successful venture--but I'd like to think I'm building out a skillset and the beginnings of a track record of successful investing.  It is this long term view that career VCs who start out early need to take in the beginning, so you can build on a strong platform for reaping the benefits of your hard work and thoughtfulness later.