A Detective, a Salesman, and a Coach
Eighteen months have gone by since I joined the Index family and became a venture capitalist. I still consider myself an outsider to the VC industry, but, time does fly when you are having fun… Before my tenure here, I had been in operating and corporate roles for 17 years. Perhaps because of that, every so often, people ask me what the biggest differences are between working in a company and being an investor. I normally rattle off some stream-of-consciousness answer to the question without giving too much thought to it. But, a few weeks ago, my 12-year old son asked the question: so Dad, what is it like to be a venture capitalist?
It is certainly a fascinating job. I feel fortunate to be able to work with entrepreneurs, partners, and colleagues who are among the brightest, most driven, and visionary people I have met – and, not just once in a while, but every day. In a sense, it’s really like no other job in the world. But, what other professions does it compare to? What skills or expertise does it require?
In order to explain it to my son, I came up with this analogy: it is like being a detective, a salesman, and a coach… all in one package.
The first thing you do as a venture capitalist is to invest in companies. In most cases, you are looking at companies where you know a little, but not a lot about their business. So, just like a detective does, you begin by analyzing the crime scene…. How strong are the entrepreneurs? How big is the market? How differentiated is the product? Does the company have momentum? The list of questions we ask is endless . The truth is that no one answer overwhelmingly determines the success or failure of a venture. Great entrepreneurship is a magic formula of skills, timing, hard work, and luck. A venture capitalists first job is to parse all these facts and make a decision as to whether the company merits an investment. Just like a detective looks at a broad range of facts – some circumstantial and some motivational - to deduce who committed the crime.
Back in my days running Business Development at Cisco, we bought a lot of companies - over 75 in 7 years. We helped Cisco broaden its reach into new market segments and new product areas. Like VCs, we weren’t experts in the new sectors we were assessing. We knew enough to be dangerous (and we were armed with a very nice currency in the Cisco stock). But, we got good at figuring out early stage companies that found a good product/market fit. Core to our ability was looking at many factors that created this fit and “pattern match” with other successful ventures. Pattern matching is a sometimes abused term in the venture business. But, in its heart, there is a lot of truth to its effectiveness. It essentially implies identifying key success factors that are similar across business. Success has patterns: it is about decoding those and applying them to new circumstances. Of course, we made lots of mistakes in pattern matching in the Cisco days– just like all VCs do. But, by playing the game often enough, we figured out how to get Cisco close to 50% of its revenue from acquisition sources at one point in time. The key to success was good pattern matching plus the number of times we pulled the trigger. A good VC does just that – create a portfolio by making enough bets with the detective’s pattern matching filter.
TV programs about detectives are among the most common shows on television. Why? Because, it is incredibly fun and engaging. It’s like figuring out a complex puzzle – that’s one of the main reasons why being a venture capitalist is so rewarding, and simply fun.
Just making a decision to invest doesn’t mean that you’ve found the winning lottery ticket. It’s just when the selling begins. First, a good VC has to convince the entrepreneur that his money is greener than the next person’s. You accomplish that by selling yourself and your firm: your knowledge and experience, your relationships, your track record, even your charming personality. “Selling” sometimes elicits a negative response from people. Like you are trying to trick someone into buying a product that they don’t really want. But, actually, the greatest form of selling is helping the buyer understand what they want or need and educating them on why your product does in fact offer that to them. It’s as much about educating as it is about changing someone’s mind.
As a VC, once you have gotten past the first sale – that of having the entrepreneur take your funding - the real selling is just beginning. A VC will “sell” their companies – not in sense of selling to stock (although, that is an occasional function your serve) – but, in the sense that you advocate your company and its products to consumers (blogs & tweets), to customers, to analysts, to industry influencers, prospective employees, etc. You help create awareness through your networks, you help develop the image of the company to the market. The days of a VC investing some money and showing up to the board meetings are long gone. A good VC is constantly working to better position their companies in every dimension.
Anyone that has ever sold something will tell you that there is a sublime feeling of satisfaction and fulfillment in the art of selling. The best kind of sale is when both the buyer and seller are both happy about what they got. Each is more fulfilled as a result of the transaction. When you’ve found those moments, you have done something special.
Being a CEO is a lonely job. You do have friends and employees in your company – but, ultimately, the buck stops with you. A chief executive is everyone’s mentor, role model, tiebreakers, and leader. A leader doesn’t get to cry on anyone’s shoulder. A leader’s job is to remove doubt and ambiguity and to clear the path for his or her team to execute.
But, CEO’s are human too. Where do they go for their coaching and support? That’s a venture capitalists job. When the CEO needs guidance in building their company: will the VP of Sales scale to the next level or not? Should we sell the company or go it alone? How am I doing as Chief Executive? VCs guide and advise the CEOs on all these issues or problems and more. In this dimension, I have found operational experience to be a real benefit. It’s not a “must” as there are many great VCs who don’t have operating backgrounds, but in my experience, having been a CEO and having led organizations does make you a better coach. Now, there is a fine line between being a coach and calling all the plays. I believe that the coach’s job is to advise, but not play the game on behalf of the management team. The team on the field plays the game; the coach prepares them and advises them. Rarely have I observed great companies built with the venture capitalists playing on the field.
One of the true privileges of my professional career was to work with one of the greatest coaches of all time: John Morgridge. John was the CEO when I joined Cisco and eventually graduated to the chairman role. John has the perfect coaching personality: he distills issues into simplicity, he helps you look for the obvious answers, he is always there with a quick joke with his dry wit – yet he manages to disarm the fears that you often face as an executive and make you feel like you can accomplish anything. On top of all that, he has no desire for the limelight. He was perfectly happy – in fact, preferred - for the management team to get the credit and for him sit behind the curtain.
Through the years I worked with him, I hope I have picked up a few of his tricks that I can pass onto the next generation of entrepreneurs. Coaching is a great job – few things are more gratifying than seeing the team you have been working with play and win the game. It is another great perk of the venture capitalist’s job.
Of course, these roles are not exclusively what VCs do. There are many “utility infielder” functions that a VC can fulfill. As a relative newcomer to the discipline, I have to say – the three discussed above are big.
The wonderful part for us is that these are all great roles to play. When I made the decision to become a VC, I have to confess that I harbored a slice of doubt as to whether I would feel as fulfilled as I had in the past. But, it has turned out to be one of my best decisions. I feel privileged and fortunate that I get to call this my profession. Of course, a special thank-you to the entrepreneurs and my friends at Index who made it happen.