“In California, you need a license to drive a car or buy a gun, but not to be a venture capitalist”- Marc Andreessen, co-founder, Andreessen-Horowitz
You don't need a license - so what exactly do you need to be a VC? A rich uncle can be a good start. And what constitutes as relevant experience? In the past decade, entrepreneurs like Marc Andreessen, Ben Horowitz, Brad Feld and Peter Thiel have launched their venture funds — after the maturation of their own startups. When the VC industry (if there is such a term) evolved in the late 1970s, most venture professionals came from all over the spectrum — technology, business development, finance and investment banking. Don Valentine, founder of Sequoia Capital started his career in sales and marketing at Fairchild Semiconductor. Tom Perkins, founder of Kleiner Perkins Caufield and Byers (KPCB) started at Hewlett Packard as the administrative head of its research department. Sir Michael Moritz, Chairman of Sequoia was a journalist with Time magazine. David Cowan of Bessemer Venture Partners started soon after his MBA, and has been making successful investments for over two decades.
Do you need entrepreneurial / startup experience to be a successful VC? And what drives smart people to be a VC, instead of starting yet another company? Why even bother with this VC thing?
Why venture capital
Most are attracted to the arena for intellectual stimulation, financial gain, freedom/autonomy and the thrill of building companies.
A career in venture capital investing is ‘the most fun you can have with your clothes on’, says Deepak Kamra, of Canaan Partners. A day in the life of a venture capitalist is filled with intellectually challenging even stimulating conversations with entrepreneurs who are changing the world. At various points in their startup journey, entrepreneurs seek investors to validate their concepts, understand industry dynamics and investment patterns. Often, seasoned entrepreneurs will drag an investor out for “a coffee” to test their assumptions. Amidst all these caffeine laden dreams, the investor is exposed to a steep learning curve of technological changes, the shifting sands of market dynamics, sources of opportunity and competitive constraints. For those who thrive on comfort in ambiguity, a rapid pace, head-butting with with Type A entrepreneurs and ‘those crazy ones’, the career path of venture capital offers it all.
Elizabeth “Beezer” Clarkson, managing director of SAP Ventures says, “We forget how unusual this career is. Other sectors seem pale in comparison when we look at the range of energy and creativity that flows to us. It can be addictive.” For those seeking financial gain primarily, this path may not be optimal, at least in the short run.
Venture capital is an ‘anti-fragile’ career with fundamental asymmetry. In his book Antifragile, author Nicholas Naseem Taleb defines asymmetry where you have more upside than downside and tend to gain from volatility, randomness, stressors, errors, time and uncertainty. Venture capitalists thrive on information asymmetry. They have a ringside view of the technological future, and the companies they have funded are often the ones to become the next generation behemoths. Financial gains are expected as a by-product of value creation, but only after asymmetry is identified and realized within a short span of five to seven years.
Building companies as mentor capitalists
Those who have had a successful entrepreneurial journey often see the venture as a pathway of imparting their lessons to the next generation. “At a certain point in your career, it is more satisfying to help entrepreneurs than to be one” says Marc Andreessen, co-founder of Andreessen-Horowitz.Scott Weiss joined Andreessen-Horowitz after selling his company, IronPort Systems to Cisco. “Being a venture capitalist gives me the opportunity to mentor and offer direction to the entrepreneurs. They trust my judgment because I have been down this path before” he points out. Scott built IronPort Systems to $200 million revenues in the tough recessionary post dot-com era and six years later, and sold it to Cisco for $800 million. His prior experiences at Microsoft and Hotmail helped shape his own entrepreneurial path. Several practitioners agreed that this career path allows them to live vicariously via supporting other entrepreneurs.
A change agent
While entrepreneurs are change agents, VCs are change agents ten times over. Schumpeter described forces of creative destruction, where industries are decimated when innovative trends occur. On the other side, the forces of creative construction, entrepreneurs and venture capitalists, are at work. When a paradigm shift occurs in any technological ecosystem, it is more likely that a venture capital investor is stoking the entrepreneurial fire. To be a part of creating of that new new thing can be immensely satisfying. “See, venture capital is reducible to a few words. You have to be interested in managing change, and you have to recognize that change is necessary,” says Donald T. Valentine, Founder, Sequoia Capital.
Successful VC practitioners are not necessarily random change agents or great entrepreneurs — rather they are students of markets, are patient and treat this as a team sport.