Who are the Best Venture Capitalists? Pure Investors or Operators?
Think differently – find self-aware mentors…
Identifying the type of venture capitalist to have on your board is one of the most important decisions you will make as an entrepreneur and I heard loud and clear that this warranted deeper discussion.
In particular, there is often a lot of debate around choosing between venture capitalists who have prior operating experience and those who do not. The fact is, it’s not operating experience alone that differentiates. Rather, the key for a venture capitalist lies in his or her approach to working with an entrepreneur. And I’ve seen both sides of this, having been an entrepreneur for a couple of decades, and now humbled as a VC for the last decade. I’ve been lucky enough to see zero to $1Bn+ of value built on each side of my career. So with that background, I see pure investors, (non-operators) as having an advantage in that they are seldom distracted by things like the technology and tend to be more focused on the untainted business elements of the investment. That can be a good balance, and it also means they are less likely to interfere with things they don’t know about and more likely to do the right thing to empower the entrepreneur and management to run the company as, of course, they should.
There are many great non-operators who have made an enormous impact on the venture capital industry. I personally observed people like Henry McCance of Greylock as a great example but there are many others from as far back as Arthur Rock. They did not start their own companies yet they enabled extraordinary value to be built alongside the entrepreneurs and ventures they funded.
On the other hand, an ex-entrepreneur bringing operating experience to the investor role can provide considerable value if they have their ego in check and are self-aware enough to figure out the right way to share that experience and mentor the team. For example, if they have been directly involved with related scenarios, they can empathize with issues an entrepreneur is facing or better still, help the team look ahead and consider what might be coming. However, it’s a critical balancing act and if the VC is tempted into doing too much, it probably means they haven’t developed the right team, and that should be the first priority. With the right team in place, the investor’s role is to remove road blocks, and reveal opportunities to accelerate the business, while providing perspective on the progress along the way. To make this personal for a moment, I have set myself a goal with the teams I work with to get “an unfair competitive advantage” from us, collectively using our experiences and the resources we have access to, and I hope to be lucky enough to play my part in that as a board member and investor.
Either way, serial venture capitalists know what it takes to grow a company. Without being formulaic, they see what models and approaches work and those that don’t and they learn to apply that to helping entrepreneurs.
The bottom line: when evaluating investors, everyone’s money is the same color, so look beyond the financial investment and ask yourself if they will provide the level of insight and experience necessary to help you and your company grow. And don’t just review their track record, talk to others who have worked with them, and get a feel for whether or not they will be a balanced partner and good self-aware mentor. If you don’t have that comfort level, and personal chemistry, keep looking. You deserve to find someone who is genuinely motivated to set you up for success.