Thursday, July 15, 2010

You Want to be a Technology Investor?

One of the questions friends often ask is how one can become a technology investor. The general advise usually includes the following which, though rational, do not offer assurance of success with any degree of certainty:

1. Get close to the venture firms, either by working at venture-backed startups or by providing advisory and consulting services to venture firms. Since most firms tend to hire people from pre-existing relationships, this is a reasonable idea. Seth Levine wrote more on his popular blog How To Become a Venture Capitalist.

2. Qualifications: There is no ideal resume for an aspiring venture capitalist. If you look at the background of successful venture capitalists you'll find ex-technologists, bankers, consultants, academicians, financiers, writers, college drop-outs, entrepreneurs, and several other professionals (including ex-Generals!.) This makes it hard to prepare oneself for a career in the venture capital industry. Leading a successful startup or exhibiting operational excellence at tech companies perhaps gives you the best shot, especially when you become a repeat CXO or an angel investor. But this circumstance will apply to only a few people.

3. Long Term Project: Actively network with the venture firms and keep a long term view of things. It's a small industry. Though no exact counts are available, it's safe to guess that the total number of Associates at all US venture firms will amount to less than 1,500. The industry association NVCA membership directory lists less than 700 members. A large numbers of firms are not NVCA members but few of them will have the resources to hire full time Associates. Only a fraction of the Associate positions will open for hiring in a year since few people leave by choice.

4. Point of Entry: There are usually two points of entry leading to a potential Partnership within a firm - a junior Partner (or a Venture Partner) or an Associate (or a Principal/Vice President.) The former applies to people who have already proven their ability to generate profits from funding or managing startups. Candidates for Associate face less stringent requirement but contend with a lot more competition. Often, I meet highly qualified people who are too young to be Partners but too old to be Associates. What's the right age to start? Most Associates (those with a potential of Partnership track) will usually start when they're 30-40 years old. If things work out, they can become a Partner in ten years or less. So, starting at the age of 40 is not entirely a bad idea.

5. Skills: Though it's hard to pin down required qualifications for budding venture capitalists, one can observe that domain expertise is more emphasized today than it was a decade ago. For example, an acknowledged expert in the field of nanotechnology or fuel cell can attract the attention of venture firms that are focused on those areas. Yet, non-quantifiable skills continue to be just as important. These can include interpersonal skills such as empathy, networking, coaching, judging and managing people. Time management, effective listening, and persuasive and organizational skills can be critical every day on the job. People that succeed in the long run also display broad awareness of economic and industry trends as well as the analytical ability to rise above the clutter of details and focus on core issues and possibilities.

I'm sorry if the list of requirements seems humanly impossible. Yes, the venture firms will say that they look for these attributes but few, if any, venture capitalists actually fulfill all of the above requirements. You can do a little experiment of your own. Ask any venture capitalist how they became one and most will say, "I was lucky to be at the right place at the right time." Luck, indeed, plays a big role. That should not surprise anybody - the odds of success are so low for any individual that chance plays a significant role. So, never assume that the guy financing your startup is smarter than you are. He is simply performing a different function.

If this subject is of interest to you, I'll encourage you to read the details of the Kauffman Fellowship in my next essay. It's a fine gateway to a career in the venture capital industry.

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