Investing

Lessons learned from Living Legends of Venture Capital

Venture Capital Legend

Just over a week ago, I had the opportunity to attend the 44th annual Venture Capital Institute conference. For three days in Atlanta, we talked nothing but venture. It was an excellent opportunity to network and meet some amazing speakers from the industry. The highlight was getting to meet and learn from Dr. Mort Grosser and Pitch Johnson. Both men are absolute legends in the industry who have been involved in venture capital since the very earliest days of Silicon Valley. Mort was a partner with Kleiner Perkins for decades. Pitch Johnson founded one of the countries first venture capital firms with Bill Draper before forming Asset Management Company which is still in operation today. I had the incredible opportunity to listen to both of these men present their views on the past, present, and future of venture capital. Hearing the collective wisdom from these two men truly was career changing for me. I tried to think about how I could best share their insights with you, and I think the best way is to just let them speak for themselves. Here are some of my favorite quotes from their talks.

The motto of Silicon Valley is “Why not?” As an investor, you have to think about the potential if everything goes right. At the end of the day, you need to rely on your gut feeling.

The secret ingredient for Silicon Valley is it’s status as the world’s longest sustained meritocracy.

If you really want to be productive in meetings bring a shoe box. Write all the negative words and phrases you can think of such as can’t, wouldn’t, couldn’t, shouldn’t, it’s been done before, etc. Whenever someone says those words, make them put $5 in the shoe box.

Good ideas start flowing when people are tired, hungry, and little bit drunk. In this state they say what they think without a filter. The best ideas come at the end of the night when the paperboy can call bullshit on the CEO. You need an environment where everyone feels empowered to speak up. That is when the magic happens.

Everything in life is a craft. You succeed by practicing it over and over again. The goal in life is to do something so well that it becomes art.

90% of success in Venture Capital is forcing your left brain to work together with your right brain.

Creativity isn’t something you can force. Creativity is about tearing down the barriers to allow your inner creativity to come out.

Here are the assets you need to create the next Silicon Valley: access to excellent institutions of higher education, access to capital, high quality entrepreneurs, horizontal society/meritocracy, acceptance of new ideas/allowance for failure.

My thought on the current venture capital bull market is that we have seen this before. Booms are caused by “lemmings”. Lemmings are people that just follow what others have done to be succesful without any analysis of their own. Don’t ever compare yourself to others. Evaluate each deal seperately. Every deal is a new deal. Every person is a new person.

Venture Capital is a priviledge and you should never forget it.

In its truest form, Venture Capital is fundamentally about building companies. This is done by investing capital, providing advice and help, and coaching entrepreneurs. Coaching is about providing emotional support and encouragement.

Venture capital is half art and half science.

Always maintain your sense of integrity. If something doesn’t feel right, be very cautious. Develop your standards and then live up to them.

Here are the keys to venture capital. Much of the art of venture capital involves making decisions about people. Don’t fail to make a numbers based analysis. Cultivate judgement about the meaning behind those numbers. Listen to your gut. Base all of your actions on a high degree of personal integrity.

The biggest problem in venture capital is people trying to make money without doing anything. Both investors and entrepreneurs today are trying to get rich first and build something important second.

The way to strike a balance between too few and too many deals is to think about how often you can call/visit a company. If you aren’t calling/visiting every company you are working with every couple of weeks, you have too many deals. Each person should not have more than 4 or 5 deals that they are working on. Half of your time should be spend on working with existing companies, half of your time should be spend looking for new deals.

At the end of the day, the people that make the value in a startup are not the entrepreneurs, it is the employees, as a director, you owe something to the employees. You owe them integrity.

Here is a rule that will bring you success in both marriage and business. No lies. Including lies of omission.

As a director you have a responsibility to know as much as absolutely possible about the industry you are in. Put in the time!

When you walk into a board room, you owe knowledge and integrity to the company and its employees. You are limited in the number of companies that you can possibly work with at any given time by this paradigm. Max number of boards that anyone should sit on is 4-5 at a time.

The most important things about being a director are being knowledgeable about the space the company is in, always acting with integrity, and being willing to just show up (even when it is difficult or late in the night).

To be successful in venture capital, you have to be intentional about believing that one person can be right and the rest of the world can be wrong.

Venture capitalists hurt companies by not being honest, not knowing enough, being in too big of a hurry, only caring about the problem instead of focusing on the solution, and being too greedy.

Combining cultures after an acquisition is extremely difficult. The only way to successfully merge companies is person by person. It is like surgery and it will require all of your time and energy to make it work.

DON’T take a board seat unless you are willing to become OBSESSED with the space the company is in!

An Introduction to Opportunity Zones

My wife and I are celebrating our 1-year anniversary this weekend with a quick getaway to somewhere yet-to-be-disclosed (I planned and surprised her with our honeymoon and now we plan to switch off for our anniversaries moving forward). As such, this week I will be doing a somewhat abbreviated post. Don’t let the brevity fool you though, the topic of Opportunity Zones is one that I am spending a lot of time researching and thinking about. This piece of legislation passed as part of the 2017 tax reform has some exciting implications for investors and low-income communities In the above video, Steve Glickman co-founder of the Economic Innovation Group (the lobby group that pushed for this legislation) outlines what exactly opportunity zones are at a high level.

(Side note: I read a very interesting article on why some of the measures of growing inequality and lack of financial prospects in this country may be overplayed that you may find interesting. My view is that there are definitely structural problems that need solving, but it requires a more nuanced approach than sometimes suggested. I think Opportunity Zones (OZs for the cool kids) can be that approach. Anyways, back to your normally scheduled running train of thoughts from inside of my head)

My understanding of how Opportunity Zones work on a high level (not tax advice):

  • Investors can defer taxes on existing capital gains by investing those gains into an Opportunity Zone fund for up to 9 years

  •   If those gains are held in the fund for over 10+ years, the investor does not have to pay any taxes on the additional gain those funds have realized over the life of their investment

The purpose of this initiative is to spur economic development in emerging market areas within the US. The incentive is investment type agnostic so venture capital investors can take advantage of these incentives alongside other investors such as real estate and private equity. The IRS just released some very investor friendly initial guidance, but there are still some questions that remain to be answered.

If you want to learn more, below are some excellent resources that I have been using to get up to speed on the potential opportunity (come on you knew I was going to do it at least once. Be impressed I showed this much restraint).

Economic Innovation Group - The lobby group that pushed for the OZ legislation. Their site is a great resource for the latest developments for the program and also has some interesting resources (including an OZ map that is weirdly fun to play around with).

Hypothesis Ventures - A new VC firm that was formed with the sole intention of investing in opportunity zones. Their website is a great resources as well as their podcast and some of the press coverage they have been receiving

Upside - One of my new favorite podcasts highlighting startups outside of Silicon Valley (sound familiar). They have a great episode with the founder of Hypothesis.vc that is definitely worth a listen!

How I got a job in Venture Capital

Photo by  Nick Jio  on  Unsplash

Photo by Nick Jio on Unsplash

Ever since I started in my new role as an Analyst at Rev1 Ventures, I have been intending to write a post detailing my experience trying to break into the world of venture capital. VC is a notoriously difficult sector to make your way in to, especially junior roles for someone only a couple years out of college. A common refrain that you will hear during informational interviews is that there are more professional baseball players than there are venture capitalists. This fact may be overblown (and certainly compares apples to oranges), but it does demonstrate just how difficult it can be to get into the field. Many arguments can be made as to exactly why this is, but at the end of the day, it boils down to a lot of people vying for relatively few open positions. 

I was able to make the transition because I made a plan and executed on that plan. There are things I would've done differently, but I think the fact that I was able to make it to final round interviews at 4 different firms demonstrates that my planning was effective.

One of the first things you learn as you start exploring a career path in VC is that the world of venture is filled with people that are willing to take time to help someone along their journey. Hopefully, some of the insights I have learned can be a resource for other people trying to make their way into the big leagues. 

Fake it till you make it 

The biggest piece of advice I can give to someone trying to get into the world of venture capital, and the place where I think I did the best job in my process, is to fake it till you make it. This means that even before you start working in VC, you should start acting like a venture capitalist. Working in private equity at The Carlyle Group, I knew I was in a related field and at a blue-chip firm that would help get my foot in the door (which it definitely did, but I was on my own past that point), but I also knew that my day-to-day at Carlyle was nothing like what my day-to-day would be like working at a venture capital firm. At Carlyle, I was dealing with billion-dollar transactions that involved decades-old companies, compared to early-stage venture capital where companies may or may not even have a product in the market and any financial records are slim at best. This meant that I had to take it upon myself to demonstrate that I had what it took to be successful in venture. 

You are reading the first way I did this. I started this blog for a variety of different reasons, but one of the main ones was so that I could build a "thought-record" for recruiting firms to look at and see that I had put time and effort into thinking critically about startups and the tech ecosystem. My write-ups on specific startups and my sector thesis deep-dives also gave me something to talk about in interviews. This may seem contrived, but if there is one piece of advice you take away from this post, START A BLOG. To be fair, it doesn't have to be a blog per se, but if you are interested in getting into the world of investing in startups, you need to start creating some sort of content that demonstrates you have spent time thinking critically about, you guessed it, investing in startups. (sidenote: I think this advice is applicable for anyone looking to change fields. Get out there and start creating content around where you want to GO, not where you are right now) I chose to blog because I had some limited (and angst-ridden) experience blogging in my high school days, I wanted to get better at writing, and, as a fan of many blogs, I felt like I had a good idea for what other readers would enjoy. Content creation takes work and commitment. No doubt about it. Before you toss aside this idea as not being worth the effort, you should know that the other analyst that I work alongside at Rev1 also started a blog as a way to help get into the industry. Must just be a coincidence... 

The other way that I started acting like a VC was through angel investing. Now, I do not have the capital to qualify as an accredited investor (generally a requirement for angel investing), but I am fortunate enough that my father does and was interested in trying something new (he is in private equity, so investing isn't new, but investing in tech startups was). We read Angel (a book about angel investing by one of the best angels in the business), joined angel syndicates on sites like AngelList and Funder's Club, and were off to the races. I helped my dad analyze startup investment opportunities and was able to practice doing some of the things I now do in my job such as writing investment memos, developing front-end deal flow, and portfolio management. This experience of actually practicing some of the skills that I hoped to one day be performing professionally was absolutely invaluable. It gave me something to talk about in interviews and I believe it helped me to stand apart from the crowd of other would-be venture capitalists. I was lucky that I was able to get some exposure to this world by working with my dad, but you can still get this practice without a connection to an accredited investor. Sites like SeedInvest and WeFunder offer even unaccredited investors opportunities to invest in startups. You actually don't even need to make investments. You can sign up for these sites and just look at deals without making any actual investments. Maybe start a shadow portfolio where you track what investments you would've made and how they performed. If you see something especially promising that fits a firm's investment thesis, send it to the attention of a VC you have met through networking. It might not be something they invest in, but if it is thoughtful and fits their firm's investment guidelines, I have never met a VC that wouldn't be impressed. 

Whenever you are trying to make a career change into a field different from where you have tangible experience, you need to take it upon yourself to find a way to get exposure outside of your normal working hours. This is especially true in as competitive and nuanced a field as venture. Come up with a way to demonstrate that you are being thoughtful about whatever space you are interested in jumping into. Go to industry-specific events and meetups and connect with people that are actually doing the work you want to be doing. However you want to approach it, faking it till you make it will give you a leg up on landing the role you want. 

Take advantage of the resources that are out there

There are a ton of excellent resources on venture capital that you should be immersing yourself in if you want to work in the space. Below I have listed a few of my favorites. 

Podcasts

20 Minute VC - An awesome and bite-sized way to get smarter on the "wonderful world of venture capital". In each episode, Harry Stebbings interviews a venture capital investor or startup founder in about twenty minutes. I really enjoy this podcast and Harry is a super nice guy that was kind enough to be a resource to me during my job search. 

Invest Like The Best - This podcast hosted by Patrick O'Shaughnessy is my absolute favorite podcast. It covers a wide variety of topics including investing of all types, as well as ways to lead a better and more productive life. The podcasts on venture capital are a great resource, but my favorite episodes are the ones that have nothing to do with investing at all. Patrick also has done a great intro to crypto series that is an awesome first step into that world.

How I Built This - This NPR podcast with Guy Raz is a super interesting and entertaining exploration about how entrepreneurs and business leaders built the companies they are famous for. Not every company explored was a venture-backed startup, but I have found interesting insights about the entrepreneurial journey in every single episode. 

a16z Podcast - Andreessen Horowitz's podcast is my favorite firm-sponsored podcast. They mostly showcase topic or sector deep dives from various a16z speaker events. Definitely a great way to get smarter on specific sectors.  

Angel: The Podcast - Jason Calacanis' podcast accompaniment to his previously-mentioned book on angel investing. Excellent interviews with both angel and institutional venture capital investors. Jason hasn't done an episode of Angel in a while, but he is also the host of This Week In Startups which is very good. 

Websites

avc.com - The definitive venture capital blog by the grandmaster of venture capital, Fred Wilson. Fred publishes a new blog every single day and is a surefire source of wisdom about both life and investing.

John Gannon's Blog - The go-to source for anyone trying to break into venture capital. John's site lists helpful resources as well as a constantly updated source of open positions at venture capital firms. 

TechCrunch - Cliche I know, but if TechCrunch is my favorite of the big tech news sites (others being VentureBeat, Recode, Hacker Noon etc) and somewhere I check at least once a day to get a view of what is going on in the ecosystem at large. 

Feld Thoughts - Brad Feld of Foundry Group is another one of the big-name investors in the space and his blog is a great resource on the ecosystem. He has also written some must-read books for anyone interested in venture investing like Venture Deals. 

Newsletters

StrictlyVC - A venture-only daily newsletter that covers the biggest stories and latest investments in venture. 

Axios Pro Rata - Dan Primack's daily blast of the latest news in business and politics.

Fortune Term Sheet - Another great newsletter written by Polina Marinova that covers a wide swath of the latest news in business. 

Network your socks off 

Does networking matter?

Yes.

Moving on.

 

 

But seriously, networking is a key part of any venture capital job search. The reality is that at most firms, networking will be a relatively significant aspect of most junior roles. If you can't network your way to decision makers at firms, how will you ever be able to network your way into meeting the best and brightest founders? To be honest, networking did not come naturally to me either when I first started my process. When I thought of networking, I thought of the overly-eager undergrad business students that would suck-up to anyone and everyone. I thought I was better than that. But I was so wrong about what exactly networking really was. It finally clicked for me when one of my colleagues described networking as meeting new people and hearing about their stories. I am an outgoing guy that enjoys meeting new people and making new friends and thinking of networking through this new lens helped it to really click for me and turned it from something I looked down on (and if I am being honest was anxious about doing) into something that I actually enjoyed. Now it is not all rainbows and butterflies. It is a skill that you need to practice like any other and it can be hard work. But like other skills, you will improve on it as you do it more and more. Networking through informational interviews with current venture capitalists is a great way to expand your network, learn more about specific firms/sectors of the venture ecosystem, and get your foot in the door. 

Getting into venture isn't solely about networking, but it is an important aspect of any job search. For reference, 3 out of the 4 final round interviews I had with firms came about because of networking. BUT I ended up taking a job at the one firm where the opportunity came from me responding to a job-listing online. I think my experience is a great demonstration of just how important networking can be, but also how it isn't the end all be all. 

Be flexible 

Have you gotten the impression of how difficult it can be to make it into the industry yet? If I have not made it clear, let me do so again. Something something more baseball players than VCs something something small number of job openings something something a lot of people trying to get into the space something something 4 partners for every 1 junior level person. 

You get the picture. Unless you have been part of a successful start-up, it will be difficult to get hired as a junior level person in the space. A way that you can mitigate this difficulty somewhat is by being flexible. 

This doesn't mean apply for anything and everything in the space (though that is a legitimate strategy). Instead, pick one or two characteristics that are really important and be flexible on others. 

I was very certain that I wanted to work at an early stage pre-seed/seed firm. I wanted to work with companies at the earliest level and really get in the weeds working alongside entrepreneurs. Because early-stage was a must for me, I decided to be more flexible on other things like where the firm was located. 

Let me tell you, when I started my search a year ago, I did not expect that I would be writing this blog post from Columbus, Ohio! Being flexible will open up more opportunities for you and you just may end up falling in love with a place you never expected like my wife and I have with Columbus!

 

Why VC

Now that I have given you my playbook for getting into VC, you should step back and ask yourself if this is really the sector you want to be in. I can personally attest that it is not as glamorous as Techcrunch headlines would cause you to believe. There is a ton of hard work and grinding. The feedback loop for success is very long and for failure it is jarringly abrupt. If you are motivated strictly by financial upside you are better off going to Wall Street. 

But for the right kind of person it is absolutely awesome!

I love what I do. I believe venture capital is a service industry whose customers are your founders and I love working alongside brilliant and motivated entrepreneurs to build game-changing companies. I am excited to go into work every day and gone are feelings of anxiety on Sunday nights. I love getting up to speed on new companies and learning about technologies that I didn't even know existed the day before. I love creatively solving problems and brainstorming ways for founders to run through the walls in their way. I love helping to build an ecosystem and I love working alongside people that are just as passionate as I am. 

If venture still sounds like the place for you, give me a call (or reach out to me on twitter).

I'll be your first informational interview.