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I don't think we can really say yet whether I'll be a successful VC in the long-run or not. As of Sept 2010 I've been a VC for 3 years. The average time it takes to exit an investment is 7-10 years if you're successful (12-18 months if you're not).
I divide VC into four phases:
1. Sourcing high-quality deals - This is where you build a network of people who refer deals to you and eventually it is hoped that you build enough of a reputation that entrepreneurs seek you out. This filled my activities for my first 18 months. I'd give myself a 9/10 on ability to source competitive deals. Only time will tell the quality in terms of financial returns but I'm delighted by the group of entrepreneurs with whom I work.
2. Working with early-stage teams / coaching / mentoring / setting strategy / rolling up sleeves - Writing checks is the easy part of VC. That's why I always chuckle when I hear people brag about how many deals they've done. All you have to do is be willing to pay the highest price or fund with the least diligence and you can write as many checks as you like! But what I think separates the wheat from the chaff of investors is that some VCs turn up at board meetings and review financial spreadsheets. Others muck in. I'm in the latter camp. If you like that sort of VC I think I'm a good fit for you. If not, best not to take my money. But I'd also say I feel I've done an 8 or 9/10 here.
3. Getting your companies to the next financing event - Inevitably as you start to make more investments and more time has passed more of your companies are going to need more money. Raising money with them is a function of:
The truth is that I'm just entering this phase. Of the companies I've funded only one has gone through the next funding round (Ad.ly) and that went very well. In the next 12 months at least four other of my investments will go through funding. So far there has been strong in-bound demand. But check back with me in a year and you can judge whether I've done well here.
4. Getting exits / Driving LP returns - Funnily enough I just wrote about this today http://www.bothsidesofthetable.c... - I think the best VCs help drive exits alongside their entrepreneurs. I have done 6 VC investments - all within the past 20 months. None have exited. That's normal. If they did it would be because there wasn't a huge outcome.
But the truth is only time will tell whether I'm financially a successful VC and I'm comfortable in my skin saying that. Any VC 3 years in saying otherwise would either be exaggerating, lucky or an extreme outlier (and obviously those do exist).
I divide VC into four phases:
1. Sourcing high-quality deals - This is where you build a network of people who refer deals to you and eventually it is hoped that you build enough of a reputation that entrepreneurs seek you out. This filled my activities for my first 18 months. I'd give myself a 9/10 on ability to source competitive deals. Only time will tell the quality in terms of financial returns but I'm delighted by the group of entrepreneurs with whom I work.
2. Working with early-stage teams / coaching / mentoring / setting strategy / rolling up sleeves - Writing checks is the easy part of VC. That's why I always chuckle when I hear people brag about how many deals they've done. All you have to do is be willing to pay the highest price or fund with the least diligence and you can write as many checks as you like! But what I think separates the wheat from the chaff of investors is that some VCs turn up at board meetings and review financial spreadsheets. Others muck in. I'm in the latter camp. If you like that sort of VC I think I'm a good fit for you. If not, best not to take my money. But I'd also say I feel I've done an 8 or 9/10 here.
3. Getting your companies to the next financing event - Inevitably as you start to make more investments and more time has passed more of your companies are going to need more money. Raising money with them is a function of:
- how good was the quality of the team, product, concept, market in the first place?
- how has it developed since your investment?
- how good are you at cultivating relationships with people further down the funding chain from you?
- what is your reputation? do people trust you? want to work with you? believe you've backed good companies?
- do you pick up the phone and dial for dollars alongside the entrepreneur or just ask them to go out and raise money and tell you when they're ready for your prorata check
The truth is that I'm just entering this phase. Of the companies I've funded only one has gone through the next funding round (Ad.ly) and that went very well. In the next 12 months at least four other of my investments will go through funding. So far there has been strong in-bound demand. But check back with me in a year and you can judge whether I've done well here.
4. Getting exits / Driving LP returns - Funnily enough I just wrote about this today http://www.bothsidesofthetable.c... - I think the best VCs help drive exits alongside their entrepreneurs. I have done 6 VC investments - all within the past 20 months. None have exited. That's normal. If they did it would be because there wasn't a huge outcome.
But the truth is only time will tell whether I'm financially a successful VC and I'm comfortable in my skin saying that. Any VC 3 years in saying otherwise would either be exaggerating, lucky or an extreme outlier (and obviously those do exist).
About the Author
Mark Suster
Venture Capitalist, Angel investor & former entrepreneur.Works at Upfront Ventures
Studied at University of Chicago
Lives in Los Angeles
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Published WriterBusiness Insider