3 Attributes of Successful VCs

      Success in the world of investing boils down to the ability to pick “good” investments. “You have to become a great buyer,” says Mike Maples of Floodgate Fund. Yet the ability to pick the good investments sounds deceptively easy, as any fool can write a check. And we typically realize our folly after making a lot of bad investments. Or as they say, good judgment comes from experience, and experience comes from bad judgment.

      The primary goal for any venture capitalist is to create value —for their entrepreneurs and their fund investors. “We are in the business of helping a company achieve critical path milestones. Being able to determine what is critical path is a matter of survival — our job is to be insanely rigorous about what the critical path is.” A definitive characteristic about a venture capitalist is being analytical about these milestones, says James Bryer, former chairman, National Venture Capital Association.

      Successful venture capitalists have an entrepreneurial mindset, the ability to understand the basics of value creation. Yet, the background of some of the leading venture capitalists demonstrates no clear pattern. You could have operational expertise. Or not. To become better at the art of investing, here are a few attributes.

STRONG AWARENESS OF TECH TRENDS

      As any candidate who aspires to be a VC someday, new entrants can bring new insights in an ever-evolving technology world. Where are the new hidden opportunities? How best can we gain access to them? The only way you would be able to add value to the venture firm is if you live, breathe, and surf on the edge of those technology waves. As a newly minted investor, try to build a list of 10 key technology trends that will impact our society over the next decade. Identify three to five trends that appeal to you, and in which you might have an edge. The best way to validate your thinking is to seek some guidance from seasoned investors. Never hesitate to send a cold email, but make it respectful and well-crafted. “I am always happy to help — it makes it easier when I get a thoughtful request,” says Brad Feld, of Foundry Group. But know that most VCs are spread very thin on time. To make a strong impact, a deep and a thorough level of preparation is essential.

      When I interviewed Terry McGuire of Polaris Ventures, a VC of 25 years, he said, “I like it when a candidate says, why did you invest in this company as opposed to that one? Not only did you check out our website but combined that with an awareness of technology waves and other opportunities therein.” So while you can get in the door of a VC, what will keep you there is your level of thinking, preparation, discipline, and homework.

      “A lot of good venture capitalists have ‘situational awareness’ — they can walk into just about any kind of meeting and, in about five minutes, figure out who's doing what to whom and exactly what the issues are, sort of cut through it and figure out what's going on. You can look at a given situation and project its trajectory reasonably well,” says James R. Swartz, formerly of Accel Partners. “You need to build a frame of reference by which to judge people and to judge opportunities and to be able to judge markets and what's going on in the economy,” says Reid Dennis, founder of Institutional Venture Partners.

Christopher Rizik, a former VC who now manages Renaissance Venture Fund, a fund of funds (FoF), says, “Have a good sense of the world around you and how it is changing. After all, we put money behind ideas that change the world — the demographic, technological — unfilled needs. You have to be open and curious to look out into the future.”

ABILITY TO PICK WINNERS

      Entrepreneurial expertise matters, but not as much. What matters is the value you create. Venture capitalists love it when a potential candidate has some entrepreneurial expertise — has built a product, attracted investor capital, managed teams, and led a company to an exit. Those very skills can sometimes become a handicap to an investor. One of the operator-turned-investors shared with me that the hardest part of their role is to stay on the sidelines. “It is not your role to be the CEO. I am always trying to run the company in proxy — jump in to save the company, steer it in the right direction or drive it faster.” There is indeed no predictor of success in VC, so don't let the lack of entrepreneurial experience stop you. Investment bankers, McKinsey consultants, lawyers, and journalists have made successful forays in the VC world. Your resume does not count anymore as much as value you may have created for founders. As the founders sing your praises, other founders will soon hear about it and start to call you, as opposed to you chasing opportunities all day. As you sift through these opportunities, becoming a good judge of human character and entrepreneurial abilities is critical. “We see a lot of executives who have a vision. Our job is to decide if it really is a vision or a hallucination,” one VC remarked. Once you can pick the winner, you have to move fast. “Having a great brand is a good start. Speed of decision-making is equally important,” says Jeff Clavier of Uncork VC. If you like the startup, you have to move quickly to seal the deal. If you don't, someone will gladly do so. This is a highly competitive business, especially in Silicon Valley.

OPTIMISM, PATIENCE, AND STABILITY

      “You have to believe that the world can change … be optimistic and at the same time, be realistic and guarded, not romantic,” says Terry McGuire, co-founder, Polaris Ventures and Emeritus Chairman of National Venture Capital Association. “You've got to be a good listener. I find if the venture capitalist does all the talking, he doesn't