So you want to be a venture capitalist

While being successful as an entrepreneur is one path to venture capital, it is not the only one. Good investors need not be good entrepreneurs and vice versa. The important thing is that a venture capitalist must understand and respect what the entrepreneur does, realize what a tough job it is, and be able to add significant value to increase the chances of success for the entrepreneur.

To join venture capital, it is important to show that you exhibit behavior that is typical of someone who is or should be in the business of investing and building companies. venture firms need Associates and Principals to process and execute deals, and support the work that Partners do in building companies, and these Associates and Principals are (sometimes but more often than not) successful entrepreneurs.

What is ultimately important is to understand whether you are good at investing, and have a mind-set for helping growing companies. By answering these questions for yourself, you can demonstrate that you have an understanding of the business, and what it means, even though you may never have stepped inside a venture firm.

Since I get asked this question all the time, I thought I’d put together a list of questions particularly for the younger (sub-35 crowd) who are not in venture capital but want to get into the industry. You can use these questions as a set of proactive responses to provide to someone about what you’ve done to become relevant, or as a list of action items of things to do if you really want to get in.

QUESTIONS (IN INCREASING ORDER OF IMPORTANCE)

Fundamental Skills

• Have you ever written a business plan (powerpoint alone is sufficient)
• Have you taken part in a business plan competition. If so, how did you do and who was on your team. Did you win ?
• Have you built an excel model showing financial projections of a business to a detailed level. Do you understand the revenue drivers of the company ?
• Have you taken classes in venture capital and/or entrepreneurship
• What do you think are the three most important personal characteristics or skills for being a successful VC
• What are the three most important characteristics of being a successful
• entrepreneur

Skills in Financing and Investing

• Have you read any books written by entrepreneurs or VCs.
• What is your favorite sector to invest in - explain your investment thesis and why this sector will make money
• If you’ve never invested in the private sector, have you made any public sector investments ? What stocks are you picking and why (this could be a parallel to show that you can think like an investor)
• What are the most important terms in venture deals. Are you familiar with the basic terms of VC deals. Could you read a term sheet ?

Knowledge: Markets & Companies

• What are the most interesting VC deals in recent times that you know of
• Have you done a detailed market reviews, studied different business models of startups and the problems they are solving, and tried to understand how they intend (or are) making money ?
• Do you have detailed knowledge of a sector (global) especially the startups in that sector ? Are there any startups that you like. If so, why do you like them ?
• Do you have any business ideas of your own ? Can you pitch them to me in 30 seconds ?

Actions: Entrepreneurship

• Have you helped anyone start a company. What did you do for them and what happened to the venture. What was your contribution ?
• Have you ever invented a product or been a part of that creative process ?
• Have you started a company or entrepreneurial venture of any kind

Relevant Experience

• Have you ever raised money for someone
• Are you strong technically ? (Engineering, Science or Medical degrees) ?
• How large or diverse is your rolodex ? How strong is your network. Do you know people who can open doors. If not, do you display characteristics of someone who can build a strong network. Would you be good at Human Resources / Headhunting ?
• Have you ever sold anything ? If not, do you have marketing and business development experience or an understanding of these functions (for late stage companies)

I am sure all VCs will have different perspectives, and this is one of many. However, I hope it is useful.