What Makes a Great VC

Every year as the Newly Minted VCs begin to settle in and blog/tweet, there is a bevy of posts about how venture capital as it stands today is broken, and they, with their new insights and operational histories are going to fix it.

Of course, most of them become what they rail against over the course of the next few years.

As I have started to think more and more about jumping the fence full force into the investing side of the entrepreneurial equation I keep asking myself two questions:

What makes up the perfect VC, and can I be that.

For many, it seems that for founder/CEOs the answer has been distilled into three key components:

  1. Keep money in the bank.
  2. Recruit amazing talent.
  3. Articulate the vision.

These three things are codependent. You can’t have one. You have to have all three. And each one requires the other two to exist.

There is no option that allows for one to drive to success. You must do all three.

Is there a similar list for VCs?

And while I asked many of my founder friends, I couldn’t seem to get a good answer.

Return phone calls; operational experience; network and rolodex. These seemed to be the most common. But these aren’t required traits. Very successful VCs tend to be horrible at returning phone calls. Mike Moritz and others have zero operational experience. And newer VCs, who might be great at helping you understand how to run your business, may have a limited rolodex.

More interestingly, the Newly Minted VC doesn’t hit on any of these as traits for how they are going to fix venture.

It’s usually:

Yet these are about how the VC is going to work with the founder, not how the VC will help the founder reduce his chance for failure. It still puts that responsibility directly on the shoulders of the entrepreneur, which in a portfolio strategy is where it should be…right?

When I think about the type of VC I would be, it matches closely to the type of investor/advisor I am. One of my heroes is Bill Walsh, the former coach of the San Francisco 49ers. At one point something like a 1/3 of all coaches in the NFL had coached under him. His legacy wasn’t the Super Bowl championships that he won with the 49ers, but the dozens and dozens of coaches that he imbued with a love for the game and the desire to succeed. I am not into investing/advising because of the short-term potential. I am in it to cultivate entrepreneurs that love their part in the ecosystem and see their contribution as larger than just the company that they are building.

Not surprisingly, the VCs that hold a similar belief are some of the most successful. Even those with huge followings and brand recognition lose the long-term game, when that brand outpaces the importance of growing the ecosystem.

Given that venture capital is a highly competitive profession that requires a high level of cooperation for success it creates the unique dynamic that the best VCs give before they take. And, most of the time, the people getting don’t realize it because its natural and organic.

so it seems that are a couple of clear components to a successful VC.

And while that might seem a lot to ask of a busy VC, there is a final component that probably matters most.

Empathy.

In a world dominated by numbers and math….By charts and graphs….By acronyms and short hand…we forget that it is run by people. Of often those people are young and inexperienced. We like to invest in the young because the possibility of them having multiple successes is higher than investing in an older entrepreneur.

But regardless of age, being an entrepreneur is a tough job. It grates on your emotions in a way that no other job does. And the best investors are the ones that stop, if even for just a moment, and ask their founders how they are doing. That reach out just to say hi. That empathize with the difficult road chosen by that (often unprepared) founder.

This is the one trait that so many VCs lack. Perhaps its the profession. Perhaps its the money. Perhaps its watching so many founders fail. I dunno.

But it’s a clear difference between the great and the good.

As I get closer to jumping the fence to the investor side of our world I think a lot about the challenges I would face to be great. And for me, I focus on three key things:

NOTE: I should say that I am not minimizing the key skill sets of a great VC: ability to spot talent early, understand financial models, see a clear path to the future, negotiate deals effectively, etc.

 
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