Wednesday, September 20, 2006

Beyond Networking

Networking is essential to Venture Capital however it can only go so far. It cannot replace the skill set that is need to be a good Venture Capitalist. Now, I will caveat this by saying that I might not necessarily be a good one but I do know (through discussions with VCs of every stripe and shades) what could make an MBA student a good VC.
In my opinion, there are three kinds of skills required (in no particular order).

PROCEDURAL KNOWLEDGE: All the skills that can be learned and form the basic transactional foundations of the day to day activities of a VC. You will do this and need to know this to be a VC. However, this alone does not make you a VC.
a. Venture Capital Theory - An introduction to Venture Capital model of financing and its methodology.
b. Basic Financial theory of Venture Capital - simple to learn, easy to implement. It involves knowledge of things like termsheets, valuation models and methologies, most of it can be learnt from a simple Corp Valuation or a Venture Capital class at school.
c. Legal Aspects of entrepreneurship - Knowledge of legal convenants/terms used in termsheets. Very useful in structuring deals and basic bread-butter stuff for most VCs.

VENTURE EXPERTISE: Builds on the procedural knowledge and is the part which distinguishes a good candidate from a bad one.
a. Technical Expertise - Having technical knowledge in one or more technology sectors is key whether it is semiconductor or biotech, security or wireless. This can be attained through general expertise in a sector or through BS/MS/PhD in it.
b. Domain Expertise - Following up the technical expertise with a genuine interest in the direction of the market is important. It is key to stay abreast of the general industry trends through a combination of blogs, articles and news-wires.
c. Operating Expertise - Having general operating experience in the industry is very useful since it proves that you have the ability to place yourselves in the entrepreneur's shoes and have been exposed to the usual situations that plague tech startups. After all, what advice would you give an entrepreneur if you don't know how it is to be in his/her place?
d. Entrepreneurial Expertise - Even better than just operational expertise. Having experience starting something or working in a startup is one of the best skillsets you can bring to a Venture Capital firm. After all, you know how it is.

EMOTIONAL MATURITY: Builds on knowledge and expertise. You can be the most knowledgeable expert in this world but it is useless if you don't know how to use your skills.
a. Ability to Connect - The nature of a VC job is such that you spend 90% of your time connecting with others. Be they partners, Entrepreneurs, customers, management teams, lawyers or bankers. It is important to be able to connect with a wide variety of people and work with them.
b. Communication Skills - It is important to articulate what your inner self says. You will be wearing many hats at the same time. Interim CEO, board observer, Venture Capitalist and what not. All of these require the knack of switching hats and communicating with a different audience.
c. Empathy - Remember the Entrepreneur? They are the gutsy one. They are taking the risk with her career/ambitions/time/resources to do this. Empathize with them. Its important to do all you can to help them succeed and most importantly, empathize with their situation. A good relationship with your entrepreneur will lead to many more interesting deals/ideas and coupled with expertise, will add credibility to your working style.

At the end of the day, as Curtis Feeny from Voyager Capital told me once, its more important to be a good human being than a great Venture Capitalist.

Did I miss something? Do comment if you think there is something else to add to this list. Next post will deal with what I did through the first year of my school to position myself!

PS: I am not a VC (yet) and neither do I have a VC job (yet). Most of my musings are based on what I learnt over the last year and through my VC friends.
PPS: Everything know or do or have done is because someone in this industry gave me a chance, talked to me or taught me. This should go a long way to prove that "nice VCs" is not a oxymoron:)


Piyush said...

Agree with the last point "empathize". I feel VCs do not invest just for "value", they simply invest to sell off to the next round of buyers and hence, find themselves in the shoes akin to that of an entrepreneur! Isn't it true?

Punit Soni's Adventures in VCland said...

well if they truly wanted to be entrepreneurial, then they would take it all the way to exit. I am not sure what you mean by buying to sell to the next round of buyers. VCs rarely downsell in future rounds unless the company is going down, and if that is true, then there would be no future rounds.