Category Archives: Venture

Where are we?

Over the past few weeks, I’ve noticed two themes in press and analysis around the tech world.

economist cover

Theme #1 : Where has the innovation gone?  This was represented best I think with this week’s cover of the Economist, asking whether we’ll ever invent anything as useful as a toilet ever again.  This echoed folks like Michael Arrington who quipped that he was bored and Peter Thiel who griped that instead of flying cars, we got instead 140 characters.

Usually, when I hear lots of mainstream concern that innovation is dead, that’s when I start getting excited.  The froth is coming out of the market, and the true innovation is out there, lurking, perhaps unrecognized (yet).  But it’s out there, just waiting to delight.

So on one hand, I’m excited.  Bullish about the future.

Theme #2: Thoughts on the Series A crunch.  Lots has been written about the pending Series A crunch.  I basically agree with Michael Maples Jr’s as quoted in a PandoDaily article, where he says (paraphrasing) that every year there are about 10 fantastic startup companies.  Irrespective of funding environment, those 10 are the ones everyone wants to get into and those have little trouble finding funding.  The goal is to start or be involved with one of those companies.

With that as context, I’ve read with increasing alarm the press that prominent incubators are putting out about how much follow-on funding their companies have attracted.  Here was one such announcement just made today.  I can understand why its useful and its not to take away from the work that incubators are doing to help companies get themselves started and off of the ground.   I’ve never been much of a fan of funding announcements though.  I’m more of a fan of announcements of big customer wins, market share achievements, and partners that are committing to your solution.  That’s real traction and where you have those wins, funding will follow.  I do worry that the signal from incubators on follow on financing is going to, if anything, prolong the Series A crunch.

These are just thoughts.  The concrete action feedback, if you’re a startup, is to stay focused on winning in the market place through traction–customers, market share, partners, revenue, growth, etc.

Delight a rapidly growing customer base and the Series A crunch and the concerns on a lack of innovation in today’s tech market will magically work themselves out.

 

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Beware the Generalizations

This week I got the rare opportunity to have a low key dinner with the founders working at the NewME Accelerator in San Francisco.  It was a great visit—the energy and sophistication of the teams there was really strong, and I enjoyed the time.

This talk was strictly Q&A—just me sitting with a group of around 15 founders, fielding questions one after another.  I love this format.  But if you’ve spent time with me, you’ll know once I get started I don’t really stop talking, so this may not be all that unique.  :)

The founders’ questions were many.  Some were specific and use case oriented, such as, “Our team has built a product, we’re getting traction, and we think we need to raise a small seed round.  Some are suggesting we raise more, what do you think?”  In your case, given the instincts that’ve gotten you this far, I reco following them going forward.  If you have an offer to raise more, then think about that then.

Or, “I’m a founder with unique and differentiated real world experience in a specific market, and I want to hire a tech team to build a product this industry needs.  How do I raise money to hire them or how to do I hire them before I have money?”  Catch 22 — not sure what to say, just have to figure out a solution.

Others were pretty hypothetical, “If you had one company with 2 million users and no revenue, and another company with a small number of users and $50,000 in revenue, which would you be more likely to invest in?”  Hm.  Totally depends on trajectory and relative opportunities of the two.

In answering the questions, I often had to reiterate a caveat I find myself making a lot these days.  Namely, when I’m answering a question on a business I know only lightly, as in when I show up at a Q&A with founders, my answers are going to be broad brushstroke generalizations.  These generalizations may not work for you in your particular situation.  Mileage can vary, a lot.  The core truth is that your on the ground reality may be the sort of thing where my advice, or the advice of other outside perspectives, is pretty useless or even harmful.

In my own experience, in building startups the core on the ground reality is pretty muddy and opaque.  This is a constant reality—startups are inherently dealing in uncertainties, and uncertainty creates ambiguity.  Uncertainty and ambiguity is more the norm than the exception.

At the same time, many in our community, investor types like me and other outsiders, present a worldview that is much more certain.  Company 1 is screwed, Company 2 is can’t miss.  Do A, do not do B.   The world is black; not white.  Approach y worked for company x, so you should think about doing y too.  In an uncertain world, the narrative of certainty is valued.

I disagree with this thinking.  Far more is unknown than known, especially by those of us far removed from the front lines of our business.  I encourage founders to hear out different opinions, but retain your own perspective, informed by the reality of your situation.

In most cases, the situations we’re dealing with aren’t black and white.  They’re gray.  Beware of people who make you think the answers are simple and that generalities work.

If the answers were simple, anyone could do this stuff.

 

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Reflections on Y Combinator Demo Day

Image representing Y Combinator as depicted in...

As a venture capitalist, I often say when speaking with founding teams, everything is a signal.  Everything is a signal, because as a potential investor in a team and the earliest stage of an idea, business and company, you are dealing with the most intangible, the most uncertain of situations. With as much imprecise, uncertain information as you are sifting through all day as a venture investor, I find that I tend to pick up on little signals.

Several months ago for example, I was taking a pitch from 3 co-founders.  The ideas was pretty interesting.  Not in my sweet spot as an investment, but a credible, if early, idea.  Something about the founding team struck me as a little off, however.  About halfway through the pitch, I stopped them.  “Tell me about the three of you came together as a team,” I said, “I’m hearing an interesting idea, but to be honest, guys, I can’t get a read on the chemistry between the three of you as a team.  If I had to guess, I’d say you three met for the first time this past weekend and thought it’d be fun to start a company together.”  They got a sheepish look on their faces and said that in fact, they’d met for the first time at a bar 10 days prior and had cooked up their plan.  Not a bad thing at all, in my mind, they just needed more time together as a team to figure out what kind of organization and company they wanted to build. This example is one of many I could point to where small signals make an impact.

With that as a framework, what was signaled at this week’s Y Combinator Demo Day as to the state of Silicon Valley and tech startups in general?   Y Combinator, of course, is the well-known startup incubator co-founded by Paul Graham.  It is a terrific organization, the gold standard of startup incubators. This batch of startups had over 70 companies, and hundreds of investors of all stripes filled the main auditorium of the Computer History Museum in Mountain View, California. With this many companies presenting, and with this many investors, there were signals galore, from which to try to point to what’s going on in the world of start-ups in Silicon Valley.

Here are the key observations I saw coming out of the Demo Day.

Revenue is happening faster.  It is well known and oft discussed that the costs of starting a company has been dropping all the time.  Open sourced software stacks and development tools, and low cost cloud resources from Amazon Web Services, all conspire with Moore’s Law to drive lower and lower startup costs for software companies.  These trends enable teams to do more with less, and this trend will only continue.

The newer phenomenon, however, is the capability to build and drive revenue faster than ever before.  More YC companies this batch than I’d ever seen before were ramping revenue, and in some cases ramping it quickly.  This is a great trend for all involved.  The signal here is that startups have an opportunity to drive revenue sooner and faster than I think ever before, and I expect this to continue.

Software continues to chomp.  VC Mega Firm Andreesen Horowitz has as their mantra software is eating the world, and this Demo Day showcased this trend in an interesting way.  Here’s what I mean.  Several years ago, critics would complain that YC companies were so single minded in their efforts to deliver a basic quantum of value by Demo Day that they were really building only features and dressing them up as companies.  Some would say also that the earlier YC efforts were far too consumer focused or limited.

I think those critiques were overblown then, and they’re totally obsolete now.  This year’s YC batch showcased companies with solutions aiming to disrupt a vast array of markets.  Several of these markets are ripe for disruption: trucking and logistics (Keychain Logistics), non-profit fund-raising (Amicus), rental price prediction (Rent.IO), interior design (Tastemaker).  All of these markets suffer from fragmentation, a low tech, antiquated value chains, and so on.  It’s awesome to see these YC companies driving to disrupt these markets.  I’m thrilled for them.  And the signal here is that if you’re thinking about starting a company, consider a sleepy old industry and what and whether you might be able to build something that dramatically upends the value chain as it is currently established.

Companies are combining bricks and clicks.  One change in this batch of YC companies, in my view was that more are stepping beyond pure software, to include real-world elements.  For example, Viacycle is a new bike sharing platform.  It combines technology with real-world equipment to enable users to rent and share bicycles.  Tastemaker is a software oriented approach to requesting a bid for design, but there are real-world steps in its process, including professionals who measure your room, and getting a hard copy of your design brief delivered.  The signal here: as software continues to disrupt more and more of daily life, we’re going to continue to see software extend beyond purely virtual and online, into real-world everyday implementations.

Venture is continuing to shift.  The trends in startups I mentioned above, will have I think a few impacts on investors.  First, focus will matter.  Startups that are getting more focused on disrupting specific verticals or value chains will, I think, over time start seeking money that’s smarter and more aligned with what they’re doing.  Second, investors will have to realize and adjust to the reality that more companies they seek to fund early will likely have revenue coming in through the door.  This will, in some cases, drive valuations.  In other cases, it will drive a healthy conversation around how to think about growing the business.  All in all these are all great things.

To close, I tell people that YC Demo Day is like Christmas morning for me.  Its a day I look forward to always.  It is a delight and a privilege to watch these many founders showcasing their hard work over the last several months, and its a great experience to remind me why we’re all so fortunate to do this job here in Silicon Valley.

 

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Engineering Agility as Competitive Advantage

TechCrunch covered today Facebook‘s announcement that they are doubling their site’s release speed, “rolling Facebook onto new code twice per day.”  This is an awesome achievement.  It’s a testament, in my mind, to Facebook’s engineering focus and energy.  It’s also a great milestone to show taht the team is focused on the right dimensions of execution despite all the press and hand-wringing going on around Facebook post-IPO.  Rather than a firm filled with distracted gazillionaires watching FB’s stock chart, Facebook is signing up to and delivering on an even higher standard of engineering agility,  Might be time to buy (note I’m not a public market investment professional, so don’t make a decision on the basis of this Friday afternoon blog post.)

I think that this announcement points to a larger trend that we will start to see throughout the technology ecosystem.  Specifically, I’m interested in tracking how engineering agility drives and fuels a team.  This is partly about ‘going lean,’ and getting something out to your users quickly.  It’s also about having the engineering chops in your organization to be able to manage on two fronts.

Front 1: being able to do all the incremental updates and bug fixes quickly and with high quality.  In a sense this is the endless cycle of innovation that every product is going through everday.  Figure out metric, tweak nob, track results: wash, rinse, repeat.

Front 2: being able, concurrently, to drive to the next discontinuity, the next major release.

Balancing both is, I think key and challenging.  In the same way that we watch user growth on the metrics of DAU, MAU, and DAU/MAU, I anticipate that we will see more transparency and standardization around engineering agility in startups over the next few months and quarters.  It is certainly something to look at and watch, and I expect that we’ll find measures that do a better job standardizing this over time.

 

 

 

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Glimpse Social Discovery Panel (Video)

I mentioned this panel in a post back at the time, and just came across the video.  I’m embedding it here:

I think all the panelists were really strong. In particular, I thought some of the discussion around what the different investors thought was important to them when they considered investing was particularly interesting.

 

Advanced StartupProTip: Real Time Metrics

Speed and responsiveness are key requirements for any company, for startups in particular.  Recently, I came across a startup that has taken these traits to an interesting and useful extreme.  Specifically, they’ve got a real-time dashboard that tracks every material metric for their business by the minute.

Every minute of every day the metrics for the business are updated.  How many users, how many views, how much revenue.  It’s a really simple concept, but as I’ve thought about it and as I’ve talked to the founders more and more, I’ve been more impressed with how astute and savvy they are about their users and their customers.  I believe this is not simply because they have achieve product market fit.  I believe an element to this is that every minute of every day they have a real sense of what’s happening with their service.

So the StartupProTip today is to challenge yourself to see whether you can get your scorecard into a real-time view.

 

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Reflections from Glimpse Social Discovery Conference

This week, I got the opportunity to participate on an investor panel at the Glimpse Social Discovery Conference in San Francisco.  I was onstage with Aydin Senkut of Felicis Ventures, Josh Elman of Greylock, Christina Brodbeck (Co-Founder of theicebreak, and prominent angel investor), with Dylan Tweney of VentureBeat moderating.

It was an interesting discussion for a few reasons.  First, there had been a pretty prominent set of press the morning of the event around a recent Paul Graham note to his YC companies and alums saying that the fund-raising environment was going to get more challenging as a result of the weakness of the Facebook IPO.  Also, there was a lot of interest in the category of “Social Discovery,” in part owing to Facebook and LinkedIn’s recent IPOs, and with the excitement and interest that we’re seeing with services like Pinterest, Instagram, and others.

I thought the insights from the other panelists was great.  Elman, in particular, whom I’d not met before, really I think framed well the whole category as basically saying that he thought social and social discovery was basically just replacing what he called “media”.  I think this is apparent–but what I liked here as that he’s just thinking about it simply.  Nothing fancy, just good old fashion disruption.  Elman also pointed out, based on his experiences working at Facebook, Twitter and others, that for him as an investor, distribution is really key.  Figuring out how the flows of the product and the sharing really draws people in and enables you to gain new users is vital as he evaluates early stage teams and business opportunities.  Great advice here, and indeed this is something that in my experience many teams skip over or think about too lightly.

Another point that was a fun discussion was raised when Dylan asked us how businesses get built via social discovery.  In my view, again, borrowing from Elman’s thesis that this is all replacing media, is that with eyeballs comes the opportunity for revenue from businesses.  With all the information and intent information that these new services are capturing–where you are, what you like, what you want, etc.–the proposition in terms of promotions to offer are way more interesting and useful than what I’d call old world media.  I continue ot believe that.  I also talked a bit about how I believe that we’ll continue to see growing social media channels–how I interact on Path is different from how I interact on Twitter is different from Facebook, etc.  Given that, I think we’ll have different media channels, as we have many different cable TV channels today on TV.  This was basically just a reprise of articles I’ve written before.

So all in all, a lot of fun and I got some good info from.  Hope to get chance to participate next year!

 

 

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Support info for Anatomy of a Pass

I’ve recently written an analysis of pitches I’ve taken in the last several quarters and what drove whether I invested or passed.

Below is a more detailed description of the scoring rubric I built and used.  Happy to take questions and receive sugestions on how this could be improved in the future.  Also, on Scribd, I’ll post the raw data anonymized and this scale, so that people can dig in.

Again, hope this is useful.

 

 

 

 

 

Score

Team Market Traction Product Likelihood of Term Sheet

5

Founder(s) are known entities, prior CEO startup experience.  E.g., Max Levchin, Mike McCue, etc.  No questions on character, work ethic, etc. Firebreather.  If achieved, opportunity would change the world, change an industry, etc. Breakout market traction.  Most likely shown not just through Unique Users or Downloads, but also through engagement (time on site, repeat visits) and user growth. Market leading product in market. Agree to invest & offer term sheet

4

Founder has strong technical chops, startup experience, and unfairly specific subject matter expertise on the business and customer s/he’s chasing.  Core foundation of team is in place.  Highest calibre of work ethic, character, etc. Exciting.  Opportunity to build a significant business, and potentially very interesting independent company. Early indications of strong market traction.  May be on a short time horizon, or after a short burst (e.g., getting featured on iTunes App Store), making telemetry a bit early. Product in market, getting traction, vision towards market leadership Pass, but with close monitor

3

Founders have strong tech backgroudn, may or may not have startup experience.  Team may be incomplete.  No quesiton on work ethic, character, etc. Medium.  Some opportunity to build an interesting business.  Some question about the size and scope of the opportunity. Early indications of product/market fit, though too early to tell.  Usually very shortly after launch. Product in market, getting traction, vision towards market leadership Pass, passive monitor

2

Founding team has some specific background shortcoming, which they are prepared to address.  (E.g., too few technical people, overabundance of MBAs and/or Advisors.)  May have an open question on work ethic, capacity, character. Weak.  Difficult to see how achieving business success with the opportunity yields large scale disruption, impact, or opportunity. Zero or very early market traction, with founders showcasing compelling model and approach towards how they plan to address and adjust. Product in demo / alpha/non-public form. Pass, cold

1

Founding team has significant credibility isuses in terms of core skill set and requirements, may also have core issues on work ethic, basic organization skills, character, etc. Missing totally. No or weak market traction and weak understanding of how important focus on market traction and product/market fit is. No demoable product. Pass, avoid

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Lessons from the Facebook IPO

The most anticipated tech IPO since Google’s offering a decade ago, Facebook‘s going public was today called “A Perfect Storm” by the Wall Street Journal’s AllThingsD, pushing further the narrative that Facebook’s IPO was a failure.  There is plenty to support the storyline– NASDAQ faced serious technical glitches to being able to fulfill all the activity, underwriters were reducing Facebook revenue forecasts during the roadshow, and two key banks on the IPO, Goldman and JP Morgan were helping hedge fund clients short Facebook stock (the horror!). Listening to the radio out here in Silicon Valley, the narrative has been that the IPO has been a disaster, in particular for the retail investor who fought to buy shares at the IPO and were expecting Facebook to surge in the first day of trading.

I see things differently.

Facebook acted in a particularly rational and concrete manner, and I think if anything should be applauded for its approach.  Notably, it priced its shares high at offering.  Recall that the preset range was between $28-35 per share according to a Wall Street Journal article from May 3, 2012, several days before Facebook began trading.  When it came time to pricing the IPO, Facebook chose $38–22% above the mid-point of the range, and well above the $35 high-end.  Facebook signaled very clearly with this pricing, that it was uninterested in providing early IPO investors with the opportunity to get a “quick pop” at the opening of trading.  Investors should never buy a product at any price, and those who didn’t re-calibrate their expectations as the prices got solidified should be looking in the mirror, as opposed to blaming Facebook.  In fact, there is no law guaranteeing that hot IPOs sizzle in upward price appreciation, and there shouldn’t be.

So why did Facebook set its price so high, when it could have been so easy to set it lower, get a pop and silence all this noise?  I think two factors came into play.  First, Facebook likely didn’t want to leave money on the table.  Setting its IPO price high would yield Facebook as much cash for its balance sheet (and for pre-public investors) as possible.  Second, Facebook likely reasoned that it didn’t want to attract investors looking for quick, short-term gains, but rather wanted investors focused on the long-term.  Certainly this approach has been consistent with how Mark Zuckerberg has built and driven his company–with a clear focus on  delayed gratification and for the longer-term.  Given that that’s been Facebook’s approach over time, its totally logical that its approach towards offering its stock to the public would similarly be optimized towards longer-term focused investors.  So the unsaid message from Facebook to its public investors with this pricing approach is this: “If you want to be an early investor in Facebook’s public stock, you had better be ready to hang on for a while.”

I applaud this approach for a few reasons.  First, when selling its shares to the public, a firm should get as much capital as it can for its balance sheet.  That is the key purpose and reason for the IPO in the first place.  Second, this approach addresses one of the key problems with today’s investment environment, namely its ultra-short-term focus.  From my perspective, Facebook’s behavior is spot on.

Those who should be excoriated are NASDAQ, retail brokerages who f*cked up trades for their retail clients, and retail investors who expected to make money on the initial pop.

NASDAQ has long positioned itself as the tech-centric exchange for stocks.  Not anymore.  The incompetent exchange is more like it, 30M shares were excuted imporperly, the largest problem the exchange has experienced.  This would be like being the wedding planner for the Royal Wedding in the UK and basically screwing the whole thing up.  This was something NASDAQ had to nail, and it didn’t.  It will be interesting to see how they recover here.  To fail this badly in this high profile an IPO is amazing.  In a world where the next Facebook will have its choice of exchanges, expect NASDAQ to be playing catch-up.

The New York Times has an interesting article about how retail brokerages like Scottrade, Charles Schwab, and Fidelity have basically universally declined to take direct responsibility for losses their retail investors suffered owing to the NASDAQ’s screw up.  Further, as retail investors are not members of Nasdaq, they can’t file complaints, whereas large institutions can.   Instead, the retail investor whow as screwed by NASDAQ’s incompetence has a totally fugly remediation process that I can only imagine involving lots of automated phone trees with cut rate brokerages like Scottrade or Fidelty.  “Dial 3 if you’d like to talk to someone about your trade… current wait times are unusually high, we expect someone to be with you in approximately 95 minutes.”   Yuck.

So retail brokerages who won’t stand behind their retail customers and who offer crumby service deserve to be called out.  Definitely.  But there is also some accountability that retail investors have to take here.  They should not come into an IPO expecting to see a quick pop.  That’s lotto thinking, its not stock investing.  It exposes you for a sucker and your foolishness deserves to be repaid with you losing your money.  When you buy a share, you are buying a share from someone ready to sell.  You need to ask yourself if you’ve really thought carefully enough about the trade you’re making, as its likely that the person or computer on the other end has dedicated a lot more brainpower to what they’re doing.  If you’re ready to put your money into the market or into Facebook, you’d better understand that its a long-term game, you really shouldn’t be doing this with an eye towards what happens today, this week, this month, or frankly this year.  To do so is foolish.

This tough love message is especially important now.  With all that we have been through in the last 10 years–DotCom Crash, WorldCon, Enron, the banking crisis, Bernie Madoff, the housing crisis–we should have learned that you’ve got to be mindful when you invest.

To see how quickly these lessons were forgotten, and how quickly the mirage of a sure thing of Facebook’s IPO took hold of the psyche, is cautionary indeed.  Fools and their money.

Disclosure: I have no investment position in Facebook.  I plan to be a long-term buyer, but frankly plan to wait a little longer, as I think the price is still too high.  I expect it to drift down over coming months, and will hope to pick some up.

 

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How to Get a Job in Venture Capital After B-School

Aside from receiving a lot of pitch decks (which I generally love receiving), the second largest category of emails I get are from MBA students (and recent grads) asking how to get a job in venture capital.  This post is for you.

The emails I receive generally take this form:

 Dear Jay,

I’m a second year student at XYZ MBA program, and I’m interested in getting into a career in venture capital (or private equity) after I graduate.   I believe that with my strong analytical background, intellectual curiosity, and leadership skills that venture capital would be a great fit for me.  I would appreciate learning whether BlueRun Ventures has any plans to hire an Associate, and if so, whether I could speak with you about this opportunity.

Sincerely,

Joe (rarely Jane) MBA

 There are a few parts to my answer to this type of approach.

The first question that I would discuss with you is whether working as an Associate help you build a career in venture?   I don’t think that this is at all clear.  The most common post-MBA entry-level jobs are  investment banking or consulting, and both have very established Associate programs.  You join the ‘i-bank’ or consulting firm, and you work at a certain level, and things follow a well defined pyramid of ‘up or out.’  After 12-24 months, you’re either promoted up to the next level of the pyramid, or you move on.  And the skills you learn as an Associate, generally help and prepare you to be a Vice President, which in turn prepares you to become a Managing Director, etc.  Very clear and generally well understood processes exist there.

In venture, this defined process doesn’t broadly exist.  While some firms take an approach similar to what an I-bank or consulting firm would do in an Associate program, most especially in early stage investing don’t take that route.   Instead of setting the Associate up to become a Principal or Partner, the firm asks the Associate to get out into the startup community and meet as many founders as possible, to see everything.  Generally this involves a very large expense account and lots of parties and networking—a job that can be fun as all get out, but not one that necessarily sets you up with the skills you’d need to be value accretive to the firm or the venture industry long-term.  More often, these Associate roles are kind of a two year hiatus of meet a bunch of founders and build your network, help run due diligence, and give input at partner meetings.  Then after two years, you’re meant to get out into the ecosystem to ‘build operating chops.’

This is certainly a route, and to be fair, some who start as Associates do end up climbing the ladder to become Partners.

At the same time, if you’re going to consider doing the Associate gig at a firm, it’d be useful for you to know whether there is a track record at that firm of Associates moving through the ranks or whether it’s more a 2-years and out program.  So that’s the first thing.

The second element to this though is probably even more important, and deserves deeper consideration.  That is a more strategic view of how do you as an individual add sustainable value to a venture firm, thereby giving you differentiated substance as to why you should earn the role relative to your competition.  This is important not only to land a role in venture; its important to think about how you add value over time once you’re in a firm.

To me this is all about what is the equation of value creation in venture, and how you showcase it.  To me there are three elements of value that really matter: (1) proprietary deal flow; (2) credibility; and (3) value add with founders.

Deal flow is lifeblood to a venture capitalist.  And proprietary deal flow is about how do you get access to great deals.  The more of the great deals you can bring to the firm and get done, the more valuable you are.   This is true for anyone in the industry: top partners at the top firms, all the way down to first day on the job associates.

If you don’t have a network in tech startups, you’re at a severe disadvantage IMHO, and you need to work on remedying that.  One MBA candidate who contacts me every few months to look for a job in venture attends a top B-school in the Midwest.  Every time we speak, I tell this person that he’s got to get out here and get to know people and get a network.  Sitting in b-school class in the Midwest does nothing to get him any network or any insight as to what deals are interesting or what teams are worth watching or knowing.  Why wouldn’t a venture firm just hire some kid from Stanford who’s worked on their on campus incubator?

If you’re a b-school student who’s not out here in the Bay Area, then find ways to get out here.  Do a summer internship out here.  Visit during breaks.  Get involved in any way you can so you can meet people and start building a network.

Credibility is also important to build: both with the partners of a certain firm and with founding teams.  This is also a challenge for most MBA candidates targeting early stage firms.  The challenge most often is that the MBA candidate lacks both technical skills and insight and concrete experience working in a very early stage company.  While the MBA candidate may be analytically rigorous and a quick study, their inability to approach a partner or portfolio company founder with credibility of having been in the environment or having had strong technical skills makes it difficult to convey value to stakeholders key to your career.

So my recommendation here is that if you have no operating background in the high tech startup world, then get some.  Work for a small company or even work for a larger established company, e.g., Facebook, Google, etc.  The most important key here is to establish that you have operating chops and you have a perspective formed around getting products into market and getting users interested in what you’re effort has produced.

Finally, and related, you’ve got to have credible value add for founders.  If founders think you’re a joke, you’re not going to survive in the industry.  The good founders all know each other and your reputation in the industry is mostly controlled by these folks.  If you’re useful and effective, then they’ll say that.  If you’re not, they’ll let the network know that too.  Whenever I speak to an MBA candidate about getting a job in venture, I’m visualizing what an interaction with that candidate and one of our portfolio company CEOs would look like.  Too often, my assessment is that the CEO would basically ask me to never put the MBA candidate in the room with them again  as they would be a time waster.

With these as the core components of creating value in venture, then my recommendations to MBA candidates seeking to build a career in venture are basically the following:

Don’t limit yourself to looking for a venture role right out of B-school, look also at operating roles at tech companies.  Especially as so many Associate roles are 2 years in duration and then you’re bumped out into industry to gain operating skills, why not just start by building the operating skills?  In an operating company, you’ll have the opportunity to build a network.  You’ll gain opportunities to create real value and gain experiences that give you credibility in your industry.  This helps you gain credibility with the partners and the founders in your space.  And when you start interacting with rockstar founders, they’ll see you as someone who’s accomplished something, who knows what you’re talking about.

Get out to the Bay Area.  New York and Los Angelese are both surging as startup areas and I don’t mean to take anything away from them.  If you have strong proprietary networks and connections in either place, then sure, consider those markets carefully.  But all things being equal, more venture firms, more startups and more people in the industry are here in the Bay Area.  If you want to build a long-term career in this industry, the smart bet is to come out here.

Evaluate your progress on the 3 elements of value I describe abve, and commit to joining venture in the long term.  I’ve described above what I think are the 3 core elements of adding value in venture.  If you’re really passionate about joining this industry, then commit to getting there in time.  Understand that irrespective of when you join the industry, it will be important to always be making progress on these 3 elements of value add.  In my view, you want to track progress on these 3 elements before and during your career in venture.  So I’d say get started, build your network, build your credibility, and figure out how to add value to founders.

 

Good luck!

 

 

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