Do entrepreneurs make good VCs ?



Shantanu is stirring up the pot by making the statement that entrepreneurs make really bad VCs, in post prompted by Guy Kawasaki’s Venture Capital Aptitude Test (which I think is an excellent post – essentially saying that you cannot be in venture without big scars on your back).

I think the point is "controversially well made".  God knows what makes a good VC, what is certain is that most people end up not making money and leaving the industry, that many of the great VCs are not entrepreneurs and that a number of great entrepreneurs I have come across turned out to be lousy VCs, and vice versa.  The mantra repeated by for example 3Com founder Benhamou that anyone who is not a former entrepreneur should not be in VC is just not supported by facts.

If you don’t believe me look no farther than Benchmark Capital – US.  Bob Kagle? BGC then venture man.  Bruce Dunlevie fares better since he ran an operating division for Everex, but ex Goldman and private equity guy.  Bill Gurley? Ex CSFB tech analyst, with some experience as a design engineer at big names.

Shantanu points to John Doerr and Mike Moritz.  We can of course add our own Danny Rimer to the list. 

In any case I think it is always good to look at the facts before falling for some wholesale comments about the fact that only great executives can make great VCs.  Being a good VC comes from a number of factors, and not all are to be found in ex entrepreneurs.  Rules are for dumb people.

I have taken the liberty of reproducing a fantastic comment from Shantanu’s blog in full, from this chap, Krishna Mony from Mumbai:

  • Spontaneity is an essential element in a VC DNA – that which made Andy Bechtolsheim write the first funding cheque of $100,000 in favor of “Google Inc” a corporation which didn’t yet exist; Legend has it that Andy was getting late for a meeting and preferred it over listening Larry and Sergie out. I would credit it with Andy’s reflexes than to cast it away merely as fortuitous.
  • I’ve noticed a few traits in common in great VCs. They invariably recognize that the biggest sin of all is inadvertence. Not being fully awake. The future descends equally on everyone, but some notice it faster because they are always pushing the limits of their knowledge, asking questions and picking up on weak signals. They keep their eyes and ears close to the ground to hear its rumblings, gut it out and react.
  • VCs must realize that they are essentially followers (of entrepreneurs’ ideas and risks that come with it) and not leaders. They are not in the business of taking direct risks but in partaking them. VCs from operational background often get confused here. Their business is betting on a team rather than playing in it.
  • They have to be willing to place intelligent bets, and give up the smoothness of predictability for the non-linear upsides of intelligent risk taking. Not all bets will lead to success but there’s hardly any safety in passivity either. They need to have the self confidence to set a direction but not the arrogance to fight the need to change if market conditions so require.

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6 Responses to Do entrepreneurs make good VCs ?

  1. Martin says:

    Interesting view and one which have obviously been discussed before, i think there is no rule for whom makes a good vc or not.

    However i do believe there is a tremendous difference being a VC in later stage company and being a VC/Angel for seed funding or A round funding, just different skills needed.

  2. Joao says:

    Felda Hardymon (Bessemer partner and #28 in Forbes midas list) shared his thoughts with me a couple of years ago on what he believes makes a good VC investor:

    -The ability to communicate
    -The ability to get mind share
    -Discipline
    -A sense of equity
    -Empathy
    -Reputation
    -Perspective
    -Stability
    -…and luck

    Aligned with what Fred posted, which basically describes a very well rounded individual. Interestingly though, from my experience, the most successful and seasoned entrepreneurs also share most of these characteristics. In the end, both good VCs and seasoned entrepreneurs are fundamentally extraordinary company builders, not pure techies or pure salesmen.

  3. Max says:

    I am going to frame “the biggest sin of all is inadvertence” and hang it on my office wall. I think we’ve just found an exception to “rules are for dumb people.” But then again… or…

    Max

  4. alan p says:

    Fred

    Maybe VC success is just good old random luck ;) …Napoleon always preferred lucky generals after all.

  5. krishna says:

    Fred,

    Thanks for the kind words and reproduction of my comment.

    Bombay (not `Bombai’) is now renamed as MUMBAI.

    Krishna Mony

  6. And how did you score on the VC Aptitude test?