ome might compare venture capital to a game of darts, trying to hit one bull’s eye in every 10 throws. But the truth is, VC is an extraordinarily difficult industry to succeed in. And it’s not for everyone.
Think about it. You’re investing in early-stage companies that have practically no track record, are hard to value, and often run by first-time founders. It can be pretty risky and unpredictable, which is why only a very special type of person can succeed in the industry.
So what are some of the traits that make up that very special type of person?
Here are 10 characteristics of truly great VCs.
You’ll likely see this one at the top of most lists describing great investors, and it’s true that curiosity may be the most critical trait of a successful VC. Genuine curiosity is a must! VCs might get pitched by a different founder every week and in a variety of different sectors. The most curious investors are the ones that find the new and lucrative opportunities before everyone else.
These VCs have an insatiable thirst for knowledge. They want to understand how the specific technology behind each company works and learn the ins and outs of lesser-known industries like blue tech. And when a great VC doesn’t understand something, they don’t quit until they do.
Ideas are a dime-a-dozen. Everyone claims to have the next big idea, and many of these might even look pretty good on paper.But good investors are putting their money behind the founders pitching those ideas because an idea is useless without execution. Could anyone but Steve Jobs have launched Apple? What about Jeff Bezos and Amazon? Maybe, but it’s unlikely.
The best idea in the world is nothing if the founder isn’t willing to put in the 12-hour days or is not insanely passionate about their idea. As an investor, you must measure how far a founder is willing to go. And you may only get a few in-person meetings to figure that out. This requires a good deal of intuition and being a good judge of character.
Being curious is hard work. If it was easy to learn new industries and understand the technical aspects behind the latest technology or software, then everyone would do it. But it requires lots of work.We’re talking going beyond the first page of a Google search level of work.Good investors are constantly doing research, speaking to experts, potential customers, and learning the regulatory landscape of each industry. Those that put in the work are the best prepared and the most likely to act fast on investment opportunities because they know what they are looking for.
4. Forward thinking
While it’s important to assess what a startup has done or what it’s doing, VCs are in the business of investing in the future. This involves analyzing trends, conducting research, and trying to determine where certain sectors will or will not be in 10 or 20 years.
Will our skies be filled with flying cars? Are people actually going to care about non-fungible tokens? What about working from home?
Nobody can predict the future, but the truly great VCs take a hard look and engage in a plethora of research to understand where the world is headed. The clearer the future is to you and the more forward-thinking you are, the easier it will to be pick winners and losers in the startup world.
5. Financially literate
It’s easy to glorify VC as taking meetings and going to fancy lunches. Make no mistake however, there is a good amount of boring and hard financial work involved.
The best investors are not gambling but rather making calculated risks. They are trying to project what kind of revenue and profitability a company can generate down the line. This means understanding growth and burn rates, cap tables, financial modeling, supply chain issues, and much more. These financials are key to telling a startup why or why not you agree with a certain valuation.
6. The ability to network
There are a few select top VCs that can sit back and wait for hundreds and thousands of startups to come to them. And they worked hard to build up their reputation. But investors new to the VC space that want to be the best know make a point to get out there and talk to people.
They are in constant communication with accelerators and college programs, keeping their ears to the ground for the best and brightest startups. That’s how you find the needle in the haystack, especially early on in your career.
Great investors are decisive. They don’t invest in a startup unless they feel really confident about its business model, financials, and founders. The best investors are not trying to follow the crowd, they want to lead rounds and aren’t afraid to go where no one else is going.Decisive investors are also not afraid to say no and shut down a current investment when they don’t see a path forward.
While it’s difficult to say no to a passionate founder after investing in them, sometimes it simply has to be done. So if you want to be one of the best, work hard, do the research, make a decision, and stick with your guns.
While there will be times when startups come to you, there will also times where you are going to have to compete for a hot startup. These up-and-comers may get multiple offers from top VC firms, so if you want to stand out, you need to make yourself indispensable.
What can you offer besides money? Will you help them hire? Are you going to be actively involved in helping them evaluate their pricing models? Can you help the startup with its diversity, equity, and inclusion goals? When startups have a lot of money coming at them, many times they are going to go with the investor(s) that adds the most value. The very best VCs make themselves that person.
It’s easy to become a big hot shot once you land a job in VC, but the truly awesome VCs never forget they are in a business that highly impacts people’s dreams and lives. If they come across a bad idea or pitch, they don’t just shut the founder down, but offer them usable constructive criticism. The cold, hard truth is the best thing for these young startup founders, but that doesn’t mean it can’t be done in a respectful fashion.
Remember, founders can work on companies for years before they are ready to raise money, so often times it’s a big deal for them to be pitching you. Also, what goes around comes around. If you are constructive and not dismissive to a founder in the present, they may come back to you with a great idea in the future.
The world of VC can be frustrating. You may go months at a time without seeing a good investment opportunity. You may pass on an investment that turns into the next Airbnb or Uber. You may see five of your investments in a row fail. The exceptional VCs have that tough mentally to handle all of this. They keep fighting and ultimately believe in their skills that got them into the industry in the first place.
If you’re in the VC industry (or want to be)and you want to make a name for yourself and leave a legacy as one of the greats, these are great benchmarks to strive towards.
Have any to add to this list? We would love to hear them. Tag us on Twitter @Going_VC and let us know what characteristics you would add!