There are a lot of great venture capitalists who started out as entrepreneurs like Vinod Khosla or Josh Kopelman. Going the other way, however, seems to be a bit tougher. In fact, I don’t really know anyone who has successfully gone the other way. Many entrepreneurs turned VCs wind up going back, but to start out on the investment side and then successfully launch a company seems to happen much less frequently. There are exceptions to everything, of course, but as someone who started out in venture and investing (GM pension, then Union Square Ventures) and then started a company that failed (Path 101), I learned a ton about what it really takes to drive a successful business forward—skills and a mindset that doesn’t necessarily square with the way venture investors think of the world.
Here are some of the top lessons learned on why it’s so hard to start a company if you’re coming out of venture capital:
1) When you start a company after seeing “best practices” as a VC, you wind up incorporating a lot of what you see as successful practices and you focus on that—when in reality you can’t really be sure *why* some of those things turned out successful. People are notoriously bad about success attribution and so I think you could probably do a lot better by just trying to avoid pitfalls—because those who have failed are a lot more thoughtful about why things didn’t work out. Successful people don’t really question or analyze success too much.
2) VCs focus on the entrepreneur and the top folks as the evaluation of the team, but as an entrepreneur, it’s the kick ass Python developer or brilliant marketer that often tips the scales—the people in the trenches. These folks are often “TBD hires” at an early stage, so not many VCs really know how to evaluate team talent if they haven’t run a company before—and that’s a critical skill as an entrepreneur.
3) VCs plan out the future of a company and what it needs—and are basically willing to support it if you continue to execute. The financing plans are largely in their court, whereas, as an entrepreneur, you deal with what you have and you always have the uncertainty of a future financing affecting your plans. It’s tougher to think within these kinds of constraints if you’re not used to it. I found myself wishing I had thought a lot more about short term wins and milestones so we could always be on sure footing than trying to build the next big thing. Sometimes, you can forget to build a usable product or a real business when you’re trying to change the world.
4) Product management is the most underappreciated focus of venture capitalists—and it’s something I should have made more of a priority as an entrepreneur. We ask about product roadmap, but we really should be asking about the process and decision making framework that you’re using to figure out that roadmap as you go along. Feature plans change, but the core of how you evaluate an opportunity and turn it into product is where I’m most focused as a VC now—since I was so bad at it as an entrepreneur.
5) VCs can afford to wait to make decisions most of the time—looking for a little more data, a little more traction… but entrepreneurs are on the clock. Funding is running low, competitors iterating. You often have to make decisions as an entrepreneur without the luxury of getting to wait. It’s a scary proposition—one you don’t really have much of a choice other than to jump right into.
I have more, but what I really want you to do is come participate in my Core Conversation at SXSW…. Saturday at 5PM, Hilton J. See you there!