One of the things that make early stage venture unique is that there really isn’t a natural “junior” role. In almost any other job, there are certain tasks and responsibilities given to younger members that they can eventually master. Also, there are usually other team members a few years ahead that one can look at and say “yeah, in a few years, I think I could be in their shoes”.
I believe that if you are thinking like an owner you quickly realize that your job as a young VC is more or less the same as the best investor at your firm. Sure you may not sit on as many boards and may not have as much influence on some firm decisions, but you all share the same objective and fiduciary responsibility to your LP’s.
This leads to the second temptation – succumbing to insecurity. Most folks who are new to venture have had a pretty healthy level of success in their early careers. But it’s sort of a shock to realize that you are now just a really inexperienced and unproven investor. There are many symptoms of this insecurity:
- Becoming an excessive self promoter
- Treating entrepreneurs badly in an effort to assert authority
- Not being able to tell the truth about a company you are working with for fear that it will reveal your mistakes
- Spreading false rumors about other VC’s or other unethical behavior
- Losing objectivity about deals you are chasing and having trouble letting go
There are many others, and most of these stem from a fear of failure (it’s something I’ve certainly experienced). It’s also remarkable to see how differently successful venture capitalists behave.
Take #5 for example. There have been a couple times that I’ve found a deal that I thought really stood out among the many I see all the time. I got very excited as I dug deeper into the company in the diligence process. However, as red flags presented themselves, I had a hard time thinking objectively because I thought “this is one of the best deals I have found. If this one doesn’t work out, how long will it be until I find a better one?”
In contrast, I often note how successful venture capitalists like Todd Dagres can be patient, objective, and sufficiently critical of their own investments. Todd may not always make the right call (no one does) but I think he has the confidence that if he misses one, his next great investment is just around the corner.
I think that’s hard to do as someone new to the business, but it’s necessary to have a similar sort of mindset. Just like athletes can’t be successful if they are motivated by a fear of screwing up, investors who are insecure and fear failure will end up making costly and personally damaging decisions. Much easier said than done though.
That’s it for me in 2008. The third installment will be coming in 2009. Best wishes and a happy new year to all!