Reflections of a VC turned entrepreneur: same game, different roles
I did it backwards. Most VCs begin their venture careers later in life after years of operating experience; I became a VC as a 28 year old business school grad having spent just a few short years in the workforce. It’s not a stretch to say my four and half years on the investing side of tech startups were the most formative of my early professional life. I was blessed with the rare opportunity to help build and operate IA Ventures as a founding team member and General Partner. We started at the end of 2009 with $20M in commitments; today IA Ventures manages $315M across three funds. Even within the world of venture capital, my time at IA was unique. In addition to full time responsibilities as a GP, I oversaw all fund operations and community/portfolio initiatives, which meant I also operated the venture firm.
After leaving IA at the end of 2013, I started a company called Leo to change the way pediatric care is delivered. The past two years have been spent honing a vision, raising capital, building a team, launching a product, and recently, starting to market that product to actual customers.
A few weeks ago, two of our lead investors and I held our first ‘board’ meeting (unofficial, as our early investors do not hold official board seats). Sitting there it struck me that I had participated in dozens of these meetings as a board member and investor, but this was my first time as an entrepreneur. The meeting was surprisingly nerve-racking but ultimately very productive. The entire experience got me thinking about the differences between my former job as a VC and current job as an entrepreneur. Despite the closely shared work space, I’ve come to better appreciate just how different these two jobs really are.
Strategist :: Operator
The investor is a strategist that exerts influence at the strategic level, providing input on overarching company mission, capitalization, major partnerships, important HR decisions, and high level product direction. The investor calls upon her relationships, experience, pattern recognition, and unique broad market perspective to offer introductions, ideas and advice.
The entrepreneur is an operator with a singular responsibility to get shit done. The entrepreneur acts where the rubber meets the road, doing whatever it takes to execute the mission. At various points in time, the entrepreneur is an evangelist, strategist, tactician, manager, contributor, salesman, marketer, operator, financier, and recruiter — she must do whatever it takes.
Where the investor enables and advises, the entrepreneur acts and executes.
Individual contributor :: Player-coach
The investor engages, first and foremost, as an individual contributor. Despite the rise of venture service platforms, it is the individual investor (not the firm) working directly with a CEO/company that drives the vast majority of (non-cash) investor value. A firm does not sit on a board, an individual does. A firm does not provide strategic input, an individual does. More than anything else, it is this singular dynamic that limits venture capital scalability — an individual investor can only sit on so many boards without subjecting herself to diminishing returns of impact. This is not to say that firms do not matter, but the undisputable primary node of venture capital is the individual.
The entrepreneur exists, and only exists, within the context of her team. Sometimes she is managing and sometimes directly contributing, but she is always working in collaboration with others at the company. Technology allows individuals to scale their impact with remarkable efficiency, but no great company has ever been built by a team of one.
Macro market analyst :: Micro market participant
The investor is an analyst of macro markets. The investor sees hundreds (if not thousands) of companies each year enabling her to piece together a picture of broad market conditions and trends. This vantage point allows the investor to identify industry strengths, weakness and pockets of opportunity — the underpinnings of an ‘investment thesis’ which drives investment decisioning.
The entrepreneur is a micro market participant focused on the interactions of highly localized market players — specific customer segments, direct competitors, and proximate partners. The entrepreneur must understand macro dynamics, but this understanding is relevant only insofar as it helps her identify and define a specific focus, and then navigate the company within the market accordingly. For the entrepreneur, dedicating too much attention to macro market factors can be distracting and ultimately counter-productive.
Reactive :: Proactive
The investor’s job is, in many respects, primarily a reactive one. Deal opportunities are generally ‘received’, kickstarting a process of review, analysis and decision-making. Portfolio requests are commonly ‘received’, kickstarting a process of assistance. There are moments of extreme proactivity (particularly when a deal is ‘hot’ and in play), but anecdotal experience suggests these moments are more of the exception than the rule.
The entrepreneur, by her very nature as an aspiring innovator and business builder, must be proactive. Innovation requires proactively creating something new and different. And staying ahead of the competition requires preemptively and continuously pushing forward. In the rapidly evolving world of tech startups, stagnation almost necessarily means retreating.
Buy side :: Sell side
The investor is generally thought of as a buyer — she is constantly pitched and offered the opportunity to buy into an investment offering. Conversely, the entrepreneur is generally a seller — selling to investors, selling to prospective employees, selling to partners, selling to customers.
Interestingly, there is a subtle nuance here that can flip this dynamic. I once heard Phin Barnes astutely comment that ‘investors begin on the buy side, but end up on the sell side’. The investor enters a relationship being sold, the entrepreneur enters selling.
However, once the investor expresses buying interest, the power dynamics can flip. When the entrepreneur is fortunate enough to create competitive demand for her offering, interested investors become ‘sellers’ of what they bring to the table and why they should be selected to participate, and the entrepreneur becomes a buyer of investment partners.
No :: Yes
The investor spends most days saying no. The investor sees thousands of deals a year and invests in a tiny percentage of them. It is not that the investor is pessimistic by nature (in fact, VCs are easily some of the most optimistic people around), it’s simply a function of the job — to identify and invest in those extremely rare companies that will create or disrupt enormous markets. Few companies meet this high bar, which understandably leads to lots of no’s.
The entrepreneur, if she hopes to succeed, searches desperately for ways to say yes. The entrepreneur searches tirelessly for ways to make something happen that no one thought possible. Every obstacle and opportunity is confronted with forceful optimism — it can be done, it should be done, it will be done. The entrepreneur is a living embodiment of Barak Obama’s 2008 campaign slogan — Yes We Can.
Portfolio :: Roulette
The investor manages a portfolio, usually consisting of 20–30 companies. The entrepreneur is all-in on a portfolio of one. In many profound respects, this represents the single biggest difference between life as an investor and entrepreneur.
The investor is lucky in this regard. It is remarkably hard to be a good VC (which should come as no surprise given how challenging it is to identify game-changing winners before they are winners), but at very least the portfolio structure offers the investor a powerful psychological buffer to smooth volatility of individual company performance. Make no mistake, the investor feels the ebbs and flows of company performance — she has real skin in the game and is ultimately responsible as a fiduciary to her own LPs — but the portfolio mutes the vicissitudes of company building as fund performance reverts to the mean of the overall portfolio.
The entrepreneur is less fortunate. Possibly the most difficult part of entrepreneurship is the extreme emotional peaks and valleys of the journey — the highs are wonderfully high, but the lows are oppressively low. For the entrepreneur, every day can be viewed as the corporate equivalent of a life and death struggle. Many successful entrepreneurs point their ability to withstand this psychological strain and push forward as the #1 driver of their ultimate success.
— — — — —
When done well, entrepreneurs and investors form a remarkably symbiotic relationship because of, not despite, the profound differences of job and function. Great investors provide complementary perspective, market insight, access and assistance that shape the trajectory of a company. Entrepreneurs lead the ground assault maneuvering the murky terrain of the market to capture opportunity. While it is interesting to note how these fields diverge, it is wonderful to witness the powerful impact they have when they come together.
