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Five portfolio management tips from venture capital veterans

Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more

Venture Capital Relationship Intelligence

Do You Have What It Takes for a Career in Venture Capital? Find Out with This 4-Question Quiz

By Rebecca Hinds

For many, venture capital has become an “it” job and career to land. The thrill of stumbling on the next Uber or Facebook and achieving overnight success continues to win hearts and minds. Yet, the realities of the venture capital day-to-day are not always glamorous. Not everyone is cut out for the grind. Are you? Here are four questions to assess whether you have what it takes.

1. Have you mastered the art of networking?

Few skills are more valuable in venture capital than strong networking skills. Are you a good networker? Do you have an already strong network that you can draw upon to surface promising investment opportunities? Don’t be fooled by vanity network metrics such as the number of LinkedIn contacts or Facebook friends you have. Effective networking is determined by the quality of your network, not the quantity.

Test out your aptitude for networking by sending deals to venture capitalists you know. Leverage your network to find promising opportunities that have flown under the radar. Demonstrating that you're attuned to the startup ecosystem and can pinpoint promising opportunities by networking is an effective way to assess whether you’re cut out for venture capital. It will also help you establish a reputation as a super-connector and gain inroads into the industry.

2. Have you experienced the entrepreneurial life?

Many venture capitalists are proponents of the notion that the most successful venture capitalists have an entrepreneurial background. First-hand experience into the trials and tribulations faced by entrepreneurs can help venture capitalists better relate to entrepreneurs, empathize with their struggles and obstacles, and offer practical and helpful advice.

Guy Kawasaki has devised the Venture Capital Aptitude Test (VCAT) to help aspiring venture capitalists assess whether they have what it takes to succeed in venture capital. A key component of the test is an evaluation of first-hand experiences. Various experiences are ascribed different weights. How high is your score?

  • Been kicked in the groin by a major, long-lasting economic downturn, so that you know how powerless you are. (add 1 point)
  • Worked at a successful startup, so that you can speak first-hand about the ecstasy of entrepreneurship. (add 1 point)
  • Worked at a failed startup, so that you understand three things: first, how hard it is to achieve success; second, that the world doesn’t owe you a thing; and third, what it’s like to be fired or laid off. (add 3 points)
  • Worked at a public company, so that you know what the end goal looks like, warts and all. (add 1 point)
  • Held a CEO position, so that you have this fantasy experience out of your system and will not try to run the startup from a board position. (add 2 points)
  • Been an angel investor with your own money, so that you understand the fiduciary responsibility of investing other people’s money. (add 2 points)

According to Kawasaki, when it comes to immersing yourself in venture capital, the bottom line is “You should become a venture capitalist after you’ve had the shiitake kicked out of you.”

3. Are you a fast learner?

The most successful venture capitalists are fast learners. They are able to ingest a lot of information quickly and identify key trends and patterns. The venture capital landscape is constantly changing and being disrupted by new trends. It’s critical to be able to get up to speed quickly.

Successful venture capitalists tend to be “T-shaped” people. That is, while they may have one area of deep expertise, they tend to have both depth and breadth and know a little bit about everything to be dangerous. A bias towards and aptitude for learning is critical to being a “T-shaped” person. Charles Hudson, a managing partner at Precursor Ventures, an early-stage venture firm, explains, “The ability to learn new things quickly is an incredibly useful skill. It wasn’t something that I fully appreciated, but I find a lot of my job relies on how quickly I can wrap my head around a new market opportunity.”

4. Do you have a long-term perspective?

The most successful venture capitalists are in it for the long-term. Successful investments don’t take shape overnight. It can take decades for an investment to generate a positive return, if at all. Aspiring venture capitalists must be prepared to play the long game. Navin Chaddha, a partner at Mayfield Fund, explains, “It’s a marathon, not a sprint. It’s extremely important to take a long-term view. Returns don’t get created in two to three years … and you can’t time markets. No human can time markets. So you adjust your strategy to not be a dinosaur, and be nimble, and don’t get carried away … Just because things look great today, investments will still exit in 7 to 10 years.”

If you’re looking for overnight success or become frustrated when the fruits of your labor don’t pay off quickly, you’re not cut out for venture capital.

Venture capital is a rather opaque industry. Haje Jan Kamps, Director of Portfolio at Bolt, a venture capital firm focused on hardware startups and enabling technologies, explains, “getting your first job in VC is a lot like breaking into Fort Knox. It isn’t impossible, but it’s hard”. While there’s no one-size-fits-all model for success, the most esteemed venture capitalists tend to exhibit a similar set of core skills. Before dabbling in venture capital, it’s essential to take a hard and honest look at whether you have what it takes to be successful.

Venture Capital Relationship Intelligence