"…it’s more about people skills and the ability to assess whether there’s a market for something."
— Dick Kramlich, co-founder NEA
I was cleaning out my files the other day and came across a 2005 NYT article by Gary Rivlin on the venture industry titled "So You Want to Be a Venture Capitalist". It is well worth a read for any of you inspiring investors. Couple of takeaways from it:
— "Below the surface, there’s a huge amount of turnover." I did not realize the degree of turnover at some firms, including 70% partner turnover at NEA (1997-2005) and 70+% partner turnover at Kleiner (1997-2005). Some is due to poor performance and other is due to strong performance and retirement.
— Up or out. A large share of a fund’s profits are often driven by 25-30% of the partners. This is a true meritocracy and the results are clear to quantify. Over half the partners will fail in the bigger picture.
— Entrepreneurs have a hard transition to the investing side despite the large trend towards this.
— Success is driven by being a good judge of people and for understanding when markets are getting ready for inflection. "you’re a natural athlete or you’re not"
— It is a mentoring business with a long gestation period…"probably 6-8 years and you should be prepared for losses of about $20 million (per person)".
One last point that the article doesn’t mention is that the entry period can be grueling. It is not as rosy as most people on the outside assume. 60% of a good fund’s deal will lose money or breakeven. The losses come early and winners take time to compound. So, sometimes you have years of carnage while being out in the wilderness hoping for the hits to come through.
"By all rights Stewart Alsop should have been a terrific venture capitalist. So why did Mr. Alsop, long considered a cyber-prophet among technology leaders, wash out in a profession in which he seemed predestined to succeed?
In recent months, as venture capital firms have announced the formation of new investment funds, a hot topic among the Silicon Valley cognoscenti has been the exodus of "tourist V.C.’s," as people from nonfinancial backgrounds are known here. Some have left the field because they did not pick enough winners; others have gone on to pursue different projects. Whatever the reason, there are hundreds fewer venture capitalists around today than just two years ago…." (click here for rest)