I was recently talking to a friend about his long term career plans. We were discussing the wide variety of dream jobs he was considering when I realized that two of them weren’t all that different from each other: partner at a venture capital firm and tech writer.
This doesn’t seem readily apparent because of the common perception of what venture capital entails. As a Wharton student, I constantly encounter the influence of a very finance-focused mindset: anything can be modeled in Excel, 10-Ks contain sacred knowledge, discounted cash flow models hold the secrets of the future… and so on. Hence, it makes sense that many people think of venture capital as they would about hedge funds or private equity — just another field of finance to jump to after slogging through two years of investment banking hell.
However, venture capital investing is actually vastly different — startups have little historical data to work with, far more unpredictability, and only a small percentage of them succeed. Most startups in a fund go bust, leaving it to a few black swans to make the exponential returns needed for a fund to be successful. As a result, selecting the right startups isn’t as simple as crunching a bunch of numbers in a model — it also requires many softer skills that good tech writers also happen to possess.
Asking the Right Questions
In the world of tech, there’s a lot of noise. VCs and tech bloggers get bombarded by thousands of startups looking for funding or press. The key to cutting through all the noise and nailing the best stories or investments is to conduct effective due diligence. Perhaps Jeopardy is on to something with their quirky answer format — asking the right questions is often more important and difficult than knowing the answers. Anyone can blindly search a haystack but knowing what you’re looking for and where to look for it helps you find the needle much more often. For VCs, asking the right questions means gaining a keen understanding of what differentiates a given startup from the crowd. For a tech journalist, it could mean the difference between dull coverage and a unique feature on a new product or startup.
The Story Matters
Asking the right questions results in a ton of useful data and information: user growth figures, value proposition, customer acquisition costs, churn rates, etc. Unfortunately, in isolation, this information will only take you so far. As Peter Fader, one of the best professors I’ve had at Wharton, repeatedly told us: any valid model or hypothesis requires a cogent story to support it. In fact, psychology research suggests that our brains are better wired to process and deeply understand information conveyed in a story or narrative. Piecing together the facts into a credible growth story is critical to identifying successful patterns and investing in companies with the most long-term growth potential. And of course, telling good stories is the essence of being a journalist.
As a VC, you would ideally invest in startups with stories that seem to fit into some long term thesis you have about an industry. Such a thesis doesn’t come about overnight; it can only be developed after gaining rigorous knowledge of the particular industry. This focus is critical to VCs and tech bloggers alike, especially since it’s so tough to know everything about every space — there are thousands of emerging startups and keeping track of all of them is more than a single person can handle. Odds are, that “gut feeling” or “sixth sense” that helps a VC make the right startup investments or a tech journalist make accurate analyses of companies isn’t a supernatural phenomenon, but rather the product of unconscious pattern-recognition, finely tuned through years of experience and deep knowledge.
By any means, I’m not suggesting that a tech writer would always make a great VC or vice-versa. But it’s interesting how many of the skills seem to carryover. Perhaps this explains why so many VCs like Fred Wilson, Paul Graham, and Marc Andreessen have blogs containing tech industry commentary and have amassed sizeable readerships. And people like Om Malik are even able to have successful careers in both VC and journalism. In any case, it’s encouraging that these skills seem to be universal in application — learning to ask the right questions, being able to tell good stories, and gaining deep knowledge of specific industries can open you to a wide range of career opportunities.
Thanks for reading — this is the first of what I hope will be many more posts on technology, startups, design, music, general life musings, and anything else that’s on my mind.