Getting a Deal Done is Only the First Step

For you reap whatever you sow.

As you’re starting your career in venture capital, an important milestone is “getting a deal done.”  In other words, you’ve sourced a new investment opportunity; assisted the diligence process; evaluated the merits of the opportunity to build conviction it’s a worthy investment; helped convince the entrepreneur to take your firm’s and not the competition’s capital; and, then likely with the help of a more senior investor, championed the investment within the partnership to cross it over the finish line.  It is all certainly a tall order, especially when you’re earlier in your venture career!  But a decade down the road, this process will be just the routine of your work.

The good news is that if you’re able to string together this series of five steps, you’ve succeeded in being a part of the entire investment process from soup to nuts.  Put it on your deal sheet.  However, with this privilege comes responsibility.  Yes, your name is attached to this deal, its inputs.  But also your name is attached to this deal’s outputs as well.

The challenge with making venture investments is that you have to live with them.  And by definition the majority of the outcomes aren’t positive.  Getting a deal done is only the first step - at least some must ultimately work out.

Too many not-yet-partner VCs have an intense but myopic focus on getting an investment, any investment, across the finish line.  With that concentration, however, it becomes too easy to lose sight of that critical step in the above process: building conviction that it’s actually a worthy investment.  If you can get it done, regardless of its merits, the thinking is to push, push, push it through.

However, it’s inevitable that this new portfolio company attached to your name will face tough issues along the way, even if it does end up becoming an outperformer.  If you don’t believe in it, then those challenges are much harder to react to appropriately.  And if it wasn’t really going to work at all from the beginning, then the situation is far worse.  You own it.  Even if you have political “air cover” from a more senior member of the partnership.  Or even if you switch firms.  Your track record includes your losses as well as your wins, and the further in your career, the more you’ll be required to point to something.

The goal of a career in venture capital is to make winning investments, not just any investments.

I’ve come to learn that while the evaluation of investments is done with the head, all final decisions eventually come from the heart.  Given all of the knowledge which has been accumulated during the diligence process in understanding the market and spending time with the entrepreneur, am I ready to act based on my gut?  You might not think it’s the case, but senior members of your team can see if you do or don’t actually believe when you’re trying to push an investment through.  (That fact is abundantly obvious to me now, though it didn’t even occur to me a dozen years ago.)

Yes, you’re going to make mistakes with bad investments over the course of your venture career.  I know that I have!  The good news is that the upside from the ones which do work well vastly overshadow the bad ones.  But don’t - with the short-term goal of getting deals done - pile more dead wood on top of cases where you had true conviction but the situation went awry.  If you’re prioritizing keeping your seat, you should have career duration time to find and champion companies that you sincerely believe will be winners.  Don’t lose the forest from the trees, as luck favors the prepared.  If you’re going to champion an investment, believe it’s going to count… because it will.