The Background Myth in Venture Capital

When I told my grandfather I was moving from product management to venture capital his first question was, “How has anything you have done prepared you for what you will do as an investor?” It was a good question that frankly caught me off guard. I impetuously rattled off some answers. Product management is actually one of the most common backgrounds for early stage investors, a notion that was initially validating for me. Many VCs hire people from similar backgrounds because it’s easier to narrow the funnel and because they believe it’s a proven formula for success. However, after observing the industry with fresh eyes I have come to believe that work-background and performance has little to no correlation in early stage investing. There are key traits that separate the best VCs from the rest, but none require a specific background as a prerequisite. For an industry whose greatest successes have come from founders with diverse backgrounds and a crucial lack of prior industry experience (AirBnB, Uber, Facebook, Amazon, Tesla, SpaceX, PayPal, Stripe, and many more…) investors should equally be on the lookout for top notch talent from unconventional backgrounds.

Why Product Managers are attractive hires for VC

The day to day of a PM and a VC are starkly different. However, the underlying attributes that make a good PM are quite similar to the characteristics that VC’s look for when hiring. When you are a PM you are the mini-CEO of your product. This is an advantage because it gives you more responsibility than most have early on in their career. To be a good PM you must have certain characteristics. You need to be hard-working, detail-oriented, motivating, empathetic, technical (to varying degrees depending on the product), descriptive, articulate, comfortable with ambiguity, and have a knack for creating engaging products. Of course, everyone will have strengths and weaknesses within these adjectives, but it turns out that VCs hold many of these traits in high regards. PMs also keep a close watch over competition, and will generally have strong opinions about individual companies and the industry as a whole. Finally, PMs are likely to have a strong network of product and engineering talent. These people may start companies of their own and/or serve as important product references. These skills may help you get the job and serve as baseline for what it takes to be a good VC, but being a good early stage investor is much more art than a science.

Commonalities Among Great VCs

From what I have observed all exceptional VCs have similar core traits. Some of these are refined and improved over time, but some are simply innate:

Insatiably curious — They are obsessed with learning. Get them interested in a subject and they will go on for hours poking and prodding. They are never complacent with what they know.

Highly opinionated (and mostly right) — They develop a clear point of view on the potential of a team and business. They have strong opinions on how the future will play out and how the technology fits in, or doesn’t.

Strong conviction — There are little proof points at the early stage. When the best VCs find a company that resonates with them, even if the business is just a team and an idea, they have unwavering beliefs in the potential impact and durability of the company. They don’t need other VCs to validate their beliefs, other VCs validate ideas based on their beliefs.

Magnetism — Some are extroverts and some are introverts, but founders get energy and excitement from meeting with the best ones. There is an undeniable force that draws people towards them.

Viciously observant — Great VCs are observant of people, situations, and trends. They can read the room and assess different parties motivations. They also pick up early on important technological trends.

Hustle and persistence — No matter how successful they are, they still fight in the trenches for the best companies. They find great teams anywhere and are not afraid to get on a plane that day to see what’s up. Best of breed companies often have to be won over creatively over time. Great investors are not afraid to play the long game.

Optimistic — They tend to see the world in a positive light, and believe that they are helping fund companies that make the world a better place. It’s hard to make good early stage investments as a pessimist, because there will always be risks and unknowns. Instead of asking “what if things go wrong,” they ask “what does the world look like if this were to become pervasive.”

Potent question asker — They quickly get to the crux of the problem without wasting time. They often point out things the entrepreneurs haven’t fully thought through.

Good listener — Great VCs are active listeners. Rather than interrupting the conversation by mentioning all of the companies they have met with that remind them of this one, they pay attention to the story at hand and all of the subtleties.

Energized by founders — Not only do they have deep respect for entrepreneurs and their time, but they get visibly excited about big ideas, no matter if it’s a fit for them or not.

Contrarian — This is certainly overused, but it doesn’t make it less worthy of mentioning. Being able to grasp/believe in ideas that oppose common knowledge, and end up being right, is key to investing in companies that will have large outcomes (This is difficult!)

Persuasive — From winning deals, to influencing their companies in positive ways, great VC’s are highly convincing and know how to make strong allies.

Analytical — Dissecting complex problems with little evidence favors structured thinkers.

Not afraid to lose money — I would do a disservice consolidating this into one sentence, read Fred Wilson’s post.

The Background Myth

I have been fortunate enough to spend time with industry legends such as Fred Wilson, Peter Fenton, and of course Alan Patricof. They have different styles, different backgrounds, and different advice to share. But what makes them similar are the aforementioned commonalities of a great VC. While certain backgrounds and pedigree will help you get a foot in the door and may improve your initial network, what makes a great venture investor has very little to do with what you studied, what roles you have occupied previously, or what companies you have founded. Venture takes high EQ/IQ, hustle, passion for technology/startups, a strong network, and most importantly dedication to supporting entrepreneurs throughout their journey. These traits can be occupied by many different types of backgrounds. Because of the homogeneity in venture, I would posit that there is a large group of unfunded companies founded by people with atypical backgrounds. These companies will go on to create extraordinary future value, but right now are sitting idle because of a largely uniform set of investors. If any of this resonates with you and you come from a non-standard background, I implore you to get in the mix and get in touch with me.

*Interestingly, between Fred, Peter, and Alan, none have founded a technology company nor have any had senior operating experience inside a technology company.

Thanks to Brad Lightcap, Jordan Zaslav, Grant Covington, and Weston Reynolds for reading drafts of this.

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