The Second Rule of Venture

Don't Lose Your Seat

Establishing and navigating a career in venture capital is difficult.  It’s an attractive role which is hyper-competitive, entry-level through to senior partner.

Which means, the first rule of venture is obvious: Get into venture.

There are plenty of other resources and programs available for navigating your way into the field.  There aren’t many seats, especially not enough for everyone who wants and deserves one.  This situation is exacerbated for women and people of color, as this industry has historically been a white men’s club. 

The corollary to that fact is that it’s really hard to return to venture once you’ve been out of it.  Most career VCs don’t hop back and forth and back again between operating startup roles and venture roles over the course of a decade or two.  In part because there is an (unfair?) bias of those on the inside to question why you would ever leave in the first place... if you weren’t forced out because of performance.

Yes, there is always the laudable goal of “getting operating experience.”  I’d argue that experience on the operating side is indeed quite helpful to succeed in venture capital, as it empowers VCs to build empathy and serve as a foundation for authentic relationships with entrepreneurs, but it is neither sufficient nor necessary to a winning VC career.

Therefore, the Second Rule of Venture, and the most important one: Don’t lose your seat.

There are two fundamental challenges with building a career in venture capital.  First, the feedback cycle is long.  Way long.  The mean and median time for a successful startup from first financing to exit by IPO or M&A hovers around 6-7 years.  And that’s an average measure.  75th percentile is closer to 8-9 years.  Second, the signal to noise ratio in this business is low.  How do you untangle luck from being good when the n number of investments a VC makes is so small?  Or said another way, how do you untangle bad luck from actual underperformance in the same context?

The reality then is that it can take a decade or more for someone to find out if she’s any good at being a venture capitalist.  And that’s after she’s earned the ability to be a “check-writer,” not just a supporting investing team member.  Yet that reality is worsened by the fact that the lemons ripen first.  Even most successful VCs receive negative feedback first before the positive feedback.  That negative feedback can disable your career quite quickly.

Of course you could have a big win early, whether by skill or luck or some mixture of the two, which depending on where you are on ownerships and credit milestone ladder, can be lucrative.  More likely, however, the first win really just gets you one step up in your climb.

Unfortunately, I’ve seen too many peers over the course of my venture career source and champion investments which turned out to be great, but were unable to reap the rewards (moral credit, that is, not just financial) because they bloomed after they had departed their firms or had even left venture capital altogether.

The most common scenario, or at least the right one to plan for, is that a career in venture capital is going to be an endurance game. And how do you win an endurance race?  Stay in the race.

How does this philosophical approach play out practically?  At whatever firm you’re currently in regardless of level of title, above all else, be a good colleague.  Selflessly assist your colleagues in diligence by opening up your network.  Volunteer for seemingly thankless “firm-building initiatives.”  Be a truth-seeking constructive thought partner in investment decision discussions, not just a naysayer or blindfolded optimist.  Recognize that at any firm with multiple partners there are power-dynamics at play which should not be willfully ignored, but navigated with intention.

And with that strategy, if you think your seat is potentially in jeopardy — whether fairly, or especially if unfairly because of politics — then it’s time to switch firms even if you aren’t at a career milestone inflection point.  It’s always more difficult to get back into VC than it is to make a lateral move which costs a couple years of re-establishing a base body of work.  Or better yet, if you’re of an entrepreneurial orientation, then start your own firm and create your own seat.  Hopping around isn’t ideal, but the alternative is worse.  

Venture capital is an endurance game, and to play it, you need to remain on the field.