I have the opportunity to meet lots of people and there is a common question, which is asked during meetings, especially with startups, “What makes a successful VC?”
Being a successful VC boils down to the ability to make good investments, which comes from good judgment. Good judgment comes from experience, and this comes after making bad investments.
My operational experience as an entrepreneur has been an important step in learning about running businesses. It taught me to possess one key attribute, empathy — a trait some of the most prominent VCs display. Running a business is about people and so is venture capital. Entrepreneurship is an emotional roller coaster like no other! Thus, empathising with entrepreneurs creates stronger bonds and helps in creating a real network of people.
Another valuable lesson is to be fast and frank, something we try to follow diligently at Episode1. Entrepreneurs are looking for money to build their business and they need it quickly. But, nothing makes the investment process more painful for an entrepreneur than to endlessly wait for feedback. And if the feedback is negative, giving poor reasons creates sourness in the relationship and tarnishes the reputation of the fund. A good VC has a sense by the end of the meeting, whether a company is investable or not, and thus, it is key to try and give honest feedback to the entrepreneur straightaway. If one is unable to offer feedback immediately, it is important to revert to the entrepreneur within an agreed timeline and cite exact reasons in case of a decline. We, at Episode1, have noticed that giving honest feedback has been helpful to entrepreneurs to improve their pitch to other investors and in return created a sense of appreciation.
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Another key trait that I have observed from some successful VCs is to give to the community. Giving can be in form of advice, mentorship or introductions. Every company we meet may not be investable, but helping the entrepreneur will help create bonding. This is a long-term investment but it will attract the entrepreneur to come back next time around. Moreover, by giving to the community, one creates goodwill and thus a positive reputation. It is this reputation which attracts people to want to come to pitch and work with you.
It is my opinion that some of the best VCs have incredible networks. These networks are diversified and expand from investors, consultants or operational individuals. Networking is key, not only to generate deal-flow but also to support portfolio companies. The key skill to networking is the ability to meet people and discuss about their interests.
As Venture Capital is a competitive business, the love for startups and the passion to help build big companies is a given. However, it is important to have a sales ability, in order to bring these high potential companies into the portfolio. This trait helps good VCs persuade entrepreneurs to work with them. However, another trait that goes hand in hand with sales is the ability to negotiate. I have noticed VCs who negotiate fairly, but competitively, in order to get the best deal for the fund, while ensuring a win-win for the entrepreneur, are the ones who see success in the long run.
Lastly, as Seth Levine had once written, good VCs need to have attention-deficit disorder. One does not need to have ADD literally, but the ability to manage multiple things and switch from one to the other. As a portfolio manager, one needs to have the ability to invest time in to each portfolio company equally.
To summarise, the role of a successful venture capitalist in my opinion is a complex one, as it comprises of 3 principal jobs — sales, finance and consulting (in that order).
And while these skills helps a VC perform well, it is the fourth element, people-skills, which help make a VC really successful…