What are the secrets to a venture capital career path? Some people think operating experience. Others believe it’s all about the right connections.
My path to venture capital started as a waiter.
It was my second year of university and the lessons learned from having worked as a waiter have been surprisingly relevant to venture capital. To me, these lessons are the real secrets to becoming a VC.
Great service never goes out of style
In any business, service is important, but especially where the business itself is a service. A waiter and a VC are both ultimately supporting someone else who is the primary decision maker. In the case of a waiter, it’s the customers sitting at the table. In the case of venture capital, it’s the founders building the companies.
But it doesn’t end there. As a waiter, you have to work with bussers, kitchen staff and other servers. As a VC, you must build strong relationships with dealflow sources, limited partners and co-investors. That doesn’t mean you have to be a pushover to everyone. Of course you have to stand your ground for important principles. But it does mean that you should think about the service you provide to everyone. Create value for others and you get more in return.
Know your customers and customize
The best business relationships transcend the first transaction. For a waiter, that means repeat customers who return and ask for you by name. To build that relationship, you have to go beyond the basics and get to know their individual food preferences. You need to know the who loves extra cheese and who has a dairy allergy.
In venture capital, putting entrepreneurs through a factory style assembly line process is not the answer. Every company is different and, more importantly, every founder is unique. You have to go beyond standard founder/investor sound bytes to truly understand individual motivations. You need to know who loves aggressive debate and who prefers open ended questions.
Be a T-shaped person
As a waiter, of course you have to understand your restaurant and the food it serves. That’s your area of expertise. But to be truly successful, you need to know a little bit about everything. Sometimes that means being a tour guide to visitors. Sometimes that means being entertainer to large groups. Sometimes that means simply being a good listener who asks thoughtful questions. Fortunately, these are all skills which are generally useful and not specific to being a waiter.
There is a similar situation in venture capital. The basic area of expertise is understanding the unique dynamics of venture investment and returns. But to be truly successful, that’s not enough. You need to understand technology and the impact it has on people. You need to be able to discuss legal issues in depth with lawyers. You need to have the soft skills to find the best teams and deal with a wide range of personalities. A T-shaped person has both depth and breadth.
Align incentives for performance
Intrinsic motivation is ultimately the key to sustained long-term performance in anything. But incentives help. For many waiters, tips from customers can make more than 50% of total compensation. This additional upside beyond the base aligns incentives for better service for customers.
In venture capital, the numbers are bigger but the basic concept is the same. The classic VC structure means management fees as the base and performance fees as the true upside. If the fund size and management fees are excessively large, that is precisely when investors in the fund start to wonder if incentives are truly aligned.
Find gaps in the market
There is no shortage of restaurants in the world and people who think they can serve food. Yet some restaurants remain empty while a few have lines around the block. The difference is that the successful ones have filled a real gap in the market. Filling a gap may be as simple as emphasizing family friendly service to attract children, who then bring their parents along. Or maybe you prefer to focus on serving the best tempura in your city. Find the gap and fill the market demand.
There is no shortage of money in the world. At its core, venture capital is a service of pooling and allocating money, so the only way to stand out is do something different. It may be as simple as focusing on companies in a specific city, like startups based in Vancouver. Or it may be as ambitious as building the bridge between startup ecoystems globally. Find the gaps and you will find the opportunities.
The road to a venture capital career
Venture capital is fundamentally a service industry. Although there is no conventional career highway to venture capital, there are many unconventional ones. If you want to learn about venture capital, a good place to start is working anywhere in the service industry.
Forget the rigid highway, follow the winding pathway.