Mar 17, 2011
Last spring and summer I interned in venture capital at Venrock Associates, working with Matthew Nordan on the energy team out of the firm’s Cambridge office. I was lucky to have Matthew as a mentor– the internship was an outstanding experience– so I’d like to share some thoughts about it here for entrepreneurs and folks interested in working in VC.
I’ll start with the latter first.
Intellectual privilege. You’ve heard this before, but I’ll say it again, VCs tend to be impressively smart people. Many a time I caught myself thinking, “Wow, I can see this VC being a high-flying professor at MIT. But, for better or worse, this prodigious talent instead is applied in VC.” It’s an absolute privilege to see the application of intellectual talent to a matter as exciting, and valuable, as startup investing.
Empirical learning. VC is a great way to learn empirically throughout your career. As a VC, your job is to put rigorous analytical structure with predictive capacity on high uncertainty. You’re constantly updating that model as you’re learning from the market. You make decisions, you invest, and you track the soundness of your analytics and decisions. Over time, sometimes painstakingly, you accumulate some truly valuable body of empirical knowledge and pattern recognition — if I were to define the word “experience”, this would be it.
History remembers entrepreneurs, not VCs. Finally, the hardest part about being a VC, especially a young VC, is not being an entrepreneur. As a VC you get exposed to the broadest range of exhilarating ideas, it’s hard to not want to go for broke and go after it yourself.
Now for the entrepreneur:
You’re at a serious disadvantage. It’s very important to recognize that you as entrepreneur are at a serious disadvantage from the very start vis-a-vis the VC. Before even meeting you, the VC has already met with dozens of other entrepreneurs in the space, swapped notes with other VCs, and talked to big company executives who could be potential partners, thus garnering the cream of the best thinking. What’s more, the VC likely has done some rigorous analysis on the space and has at the disposal some nuanced details that are important. It’s very hard for the entrepreneur, especially a young entrepreneur, to beat that. But challenge yourself to do that. Other than entrepreneurs who make them money, VCs love entrepreneurs who teach them about an industry. And these two things usually go in hand.
Team, team, team – no joke. Before I came to Venrock, I’ve gone to many speaking events by VCs at Sloan. I’ve heard VCs say “It’s all about team, team, team” over and over again. (With some notable exceptions: e.g. Tom Perkins of KPCB fame for whom the idea matters more than the team). It makes perfect sense the first time you hear it, but over time it can’t help but sound like a broken record. Yet, very early at Venrock I learned why “team, team, team” is repeated so much: teams, more often than not, matter more than the product. And this unwavering belief in the mighty importance of the team shows itself in so many different ways, from pitch to exit. Starting from how you get in front of a VC (e.g. Who introduced you.) to the due diligence process (it’s you, not your business, being most rigorously evaluated). This all-eyes-on-you approach can be stressful for the entrepreneur. Sometimes, it’s intentionally stressful — you’re evaluated how you as a startup CEO perform under stress.
Rigorous evaluation of the entrepreneur is particularly vital in areas such as energy where paths to success are typically drawn-out and thorny. Your business likely will require multiple rounds of investing, so your VC wants to be sure that you’ll wow other investors as much as you’ve wowed them — the very survival of your company, and consequently the success of your VC’s whole initial investment, may depend on that. This is a tough guessing game — it’s not just “Do I like you?” but also “Do I think others will like you too?”
Furthermore, in a space like energy, your startup’s success will lie through strategic partnerships with big companies. Your VC will want to know that you can make that happen by first selling big company executives on your vision and then stewarding your company through the complexities of the partnership.
Also, your startup may at some point benefit from having a big-time super-experienced CEO. Your VC needs the comfort of knowing that you can sway someone like that to your side. In short, VCs in fields such as energy are looking for that rare combination in the personality of the entrepreneur where the promise of being an all-star CEO combines with, but doesn’t preclude, the flexibility to attract, if need be, and accommodate a more experienced CEO, while remaining committed to the cause and not rocking the boat. It’s hard.
Be a magician. So do you need to be a superhuman? No, not really, just a bit of a magician. Truth be told, even in a booming market it’s almost impossible to tell what idea (and what combination of idea, team, and product) is going to be big and how big. Especially at an early stage. And there’s always a thousand reasons why you, your team, your idea, or your product may not succeed. Your best tool is to break out your magic wand and “distort” reality — it’s not distortion, really, it’s projection of highly plausible future onto the present. Make the VC think, “Jeez, I may have the next Steve Jobs sitting here. Chances are, of course, I’m fooling myself, but in the small chance that I’m not, I’d sure love to be in the game when it happens.” VCs are super busy, they hate being wrong, they are looking at many startups at one same time, and without a bit of reality distortion on your part it’s hard to get them to exert the kind of urgency that you as entrepreneur really need.
Crush it. The best advice for entrepreneurs that I’ve heard that’s not often mentioned is that you’ve got to crush it. Crush every meeting, every instance of contact where you’re being evaluated. That’s the plain truth of it. Everyone you talk to, who has any bearing on your business, however infinitesimally small, has to come away from meeting you inspired, confident in your success, and badly wanting to help and ride your wave. You’re being evaluated at every moment, but, unlike in school, you won’t get cut any slack. So be an animal, crush it.
And oh, don’t forget to have a great product.