Become a better VC by honing your skills.
One of our subscribers reached out asking a great question a few weeks back and I thought I’d write a post to expand my thoughts on the topic. The email question referenced Angela Duckworth’s book “Grit” and talked about how one should pursue deliberate practice over thousands of hours in order to develop expertise.
The subscriber asked “in your opinion, what are some deliberate practices that Jr. VC’s should focus on?”
In my view, there are two important skills that are critical in VC that can be develop through deliberate practices.
Skill #1: Developing a functional level of expertise in new areas quickly.
Most VC’s are not truly experts in any one area. But many have developed what I’d call a functional expertise in many areas over time. You understand the lingo. You know some of the experts and understand their opinions. You know what the biggest questions are about the market or technology and you have been able to synthesize all of this to develop some non-obvious point of view.
This can actually be done in several months of study. And if you accomplish this, you will be ahead of 90% of other investors that say they are interested in an area because it’s hot and because they read a few blog posts from A16Z.
To develop this skill, one should commit to periods of industry deep dives. Pick an emerging area and spend a solid 20% of your or more diving deep. This allows you to be proactive rather than reactive to the market. Tell your partners that you are doing this, and that you want to commit to giving a presentation on your learnings after 3 months. Work with a partner who is interested in the same area to help you think through the kinds of questions you should be asking and to access experts that he/she could help you connect with.
Another practice is to blog or publish in some way. Committing to write something down forces you to synthesize your thoughts and try to put something out into the world that has a point of view. This can be very intimidating, but my main advice is to just publish anything. I’ve found that the more I write, the easier it is to write. You quickly realize that no one is actually paying much attention if you say something weak or shallow. But if you keep at it, eventually you will say something useful and it will be much easier to get folks to become aware if you aren’t starting from scratch.
Skill #2: Develop your investing persona.
VC is about understanding technology and supporting entrepreneurs. But it’s also about investing money and generating returns. There are many VC’s that were amazing technologists and operators that turned out to be pretty bad investors. And other folks who were great investors first and learned how to become effective as a partner to founders.
The emotional capacity to put money at risk and generate returns is a skill that can be learned. Figuring out how you make decisions with uncertain information is also a skill. I genuinely believe that a big part of becoming a good investor is understanding your own psychology and developing an approach to decision-making that matches your unique personality. It’s great to read about frameworks of the great investors, but you need to battle test them in the real world, and figure out what biases most impact you when the decision is in your hands.
I always encourage new VC’s to take some time and whatever resources they have and start making investments. They don’t need to be angel investments in startups, they can just be public equities, crypto, NFTs, sneakers, etc. The nature of the investing doesn’t need to mirror venture at all (although it’s helpful if there is some overlap). But the bigger point is to get more reps making the “buy” and “sell” decisions and living with the consequences of your actions. Try to put enough at risk that it matters for you, and find a way to track your performance honestly.
You can even go slightly overboard and write a periodic report as though you were accountable to LPs (maybe it’s just yourself or your spouse). Use that as a forcing function to aggregate the data and reflect on what you did right, what you did wrong. Where did you process break down and how could you improve it? Where did you just get unlikely and get the wrong outcome even though you had the right process? As a Midas list investor told me early when I got into the industry, great VC’s have a “sense for equity.” By this, he didn’t mean equity in terms of justice, but equity in terms of ownership of a risk asset and how to maximize it. As a junior VC, you will get too few shots on goal to develop this skill if you rely on a small data set of the deals you source. Doing any other kind of disciplined investing is a great practice to develop this on an accelerated pace.
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