Two sides of the table
I recently heard David Rowan (of Wired magazine) speak. He has a substantial fan-base among those who are keen to know about technologies that shape the future. He also has a knack of looking at technology companies and incidents with a unique sense of humor. His talk touched a nerve when he referenced consultants.
He referred the study commissioned by AT&T in the early 1980s, its result and how it affected AT&T. McKinsey & Company was commissioned by AT&T (whose Bell Labs had invented cellular telephony) to forecast cell phone penetration in the U.S. by 2000. The consultant’s prediction, 900,000 subscribers, was less than 1% of the actual figure in 2000–109 Million. Based on this legendary mistake, AT&T decided there was not much future to these toys called mobile phones. A decade later, AT&T had to correct itself and to re-join the cellular market, they were forced to acquire McCaw Cellular for $12.6 Billion.
While consultants are well able to discuss the “here” and the “now”, examples such as the AT&T case mentioned above, raise questions on their ability to gaze into the future, see beyond the horizon and unearth disruptive business strategies.
So, who sees beyond the “here” and the “now”? These are people who have insane levels of passion. They live an idea to such an extent that they become irrational seers while retaining a clairvoyance that is unique. This breed of people are called “Entrepreneurs” and many among them are able to see the big picture clearly when most others can’t look through the haze. They have strong opinions on how things will pan out over the next few years and they bring the tenacity and resilience to hang in there till their vision is realized.
The next question then naturally would be — “What makes a good entrepreneur?” I looked up the answer with maximum number of views on Quora. Tim Westergren, founder of Pandora, says, being a good communicator is the defining attribute of a successful entrepreneur. It is about conceptualizing a great idea and communicating it immaculately to get a team excited and inspired by it.
Another interesting answer was by Adeo Ressi who defined successful entrepreneurship as a combination of three things — genetics, circumstances and perseverance. He aptly sums it up as “Dream Big, and Die Trying”.
I wondered how different it may have been if I had access to tons of information at my disposal when I took the entrepreneurship plunge in 1996 marking the beginning of a decade long journey. “What truly makes an entrepreneur succeed?” — is a topic of perpetual interest to me and I reflect often about my own experiences. Here are my thoughts:
Adapting to a new normal — An entrepreneur is forced to think, evolve, network, adjust, multi-task, decide and execute — all in real-time. It is a constant push for her to be out of her comfort zone. It brings to the fore her qualities which are otherwise undiscovered. The ability to pivot quickly to this new normal will predict the extent of success she can achieve. While I had no prior experience in Sales and Marketing, my entrepreneurial stint helped me unearth inherent abilities by pushing me into a new normal, which gave me no option but to rapidly learn or wither away.
Passion to the point of obsession — We have heard many times about the entrepreneur’s need to be passionate. To her, the idea feels tangibly real, not a demented obsession. This leads her to focus on the “here” and the “now” of the idea and yet visualize the impact on a larger canvas. The dream becomes real and perhaps Paulo Coelho is right, “When you truly want something, all the universe conspires in helping you to achieve it.”
The sacrifice— The entrepreneurial path is anything but easy. She has to face tough decisions and communicate them convincingly. Work-life balance remains elusive and she feels alone on this herculean journey. It seems like a commitment that has no recourse to the old normal. However, it is this commitment that strengthens her to take on any adversity. The mental strength is the only recourse to keep going and maintain a “can-do” attitude. You are forced to make tough decisions. Some of the hardest decisions for me have been distancing of relationships, friends and colleagues, in the balancing act of building a business. Is it an inevitable toll we pay on the entrepreneurship highway? You sacrifice much of the familiar to get to the new “you”.
The power of learning — An entrepreneur doesn’t have a guide book or a road map set out for her. She has to pave the way and inspire a team to follow her. She has to constantly step ahead, learn and improvise on the go. This trait enables her to adapt to the dynamism of entrepreneurship and align her venture with the changing requirements of its stakeholders.
The value of rejection — The faster an entrepreneur learns to deal with rejection, the better. She has to review the reason for rejection, make changes if necessary and move on. It is difficult for investors, or other stakeholders to be harbingers of bad news so she has to tune to listen to the nuances and read the tea leaves. I was once rejected by an investor who honestly expressed his unwillingness to invest in my venture as I was seven months pregnant at the time. I appreciated the honesty and it did give me a crash course on how perceptions are formed on the other side of the table.Do players make better coaches?
After a decade of being an entrepreneur, I turned to being a Venture Capitalist in 2006. I believe that, VCs, who have been entrepreneurs, have hands-on experience in founding and developing startups, and thus can become good guides and mentors to new entrepreneurs. After they become VCs, the entrepreneurship experience enables them to gauge the effectiveness and sustainability of an idea much better than others.
I thought it would be interesting to hear the perspectives from entrepreneurs themselves. I asked a few entrepreneurs I work with, “Does a VC — who has been an entrepreneur — bring anything extra to the table?” Their answers (definitely insightful and interesting) are below:
Absolutely. An entrepreneur turned VC has experienced first-hand, the ups and downs of building and scaling a business. This makes the VC a better adviser as s/he is able to understand the motivations and psychology of the entrepreneur and is therefore able to influence decisions in a positive fashion.
- Priyanka Gill, Popxo
I believe in the saying, “experience brings empathy”. A VC, who has been an entrepreneur in the past, will intrinsically be more empathetic to entrepreneurs than someone who has not lived the entrepreneurial journey. After all, he or she must have lived the moments, walked down that road, felt the pain, the joy, the insecurities and the loneliness of it all; everything that an entrepreneur goes through while building a venture. I would any day prefer to have someone who has been in the arena as a gladiator as my mentor than someone who has had only a ringside view.
- Shradha Sharma, Yourstory
One of the biggest reasons for us going with Kalaari was the fact that you’ve been an entrepreneur. I was more excited about working with you and being able to learn from your past experiences than the money that we were raising. I think entrepreneurs make the best VCs.
- Nischal Shetty, Crowdfire
Of course, this is not a black & white question where a VC with entrepreneurial experience will always make better decisions than a VC with no entrepreneurial experience; but overall, if we had to lean towards one side, a VC with no entrepreneurial experience should be able to make better decisions than a VC with entrepreneurial experience because of the inherent downside in bias.
But there’s a twist! Just like a coin has two sides, we cannot forget the start-up entrepreneur and their decision on which VC to go with. In this case, it becomes very black and white: an entrepreneur will much more likely pick a VC with entrepreneurial experience than a VC that does not have that experience. Therefore, the VC with entrepreneurial experience ultimately wins. Not only that- but because the VC has this automatic advantage, the VC with entrepreneurial experience should have more companies to select from than a VC with no entrepreneurial experience due to the fact that start-ups will prefer working with an investor who has “been in their shoes”.
Therefore, the VC can select the best of the best, and through that process, select the best companies to fund and ultimately optimise the bottom line of the fund.
- Ravi Kumar and Raghu Kumar, RKSV
I feel that entrepreneurship teaches one to look beyond the most obvious. An investor who has been an entrepreneur brings that very sense to the table. From my personal experience, it is easier to discuss business and execution with an entrepreneur turned VC. Ideas flow naturally, conclusions are logical. The ‘I have been in this situation and this is how I came out of it’ itself is the biggest value one can derive as an entrepreneur.
- Saurabh Saxena, Holachef
While I haven’t done extensive research on the topic, there are noteworthy people who have leveraged their experience on the entrepreneurship side of the table to do exceedingly well on the VC side. Marc Andreessen, for instance, of Netscape fame — a revolutionary product in the internet world at the time. No wonder then, he found success as a VC with investments in Twitter, Facebook and Pinterest. Peter Thiel is another example of a VC who first made his name as an entrepreneur. While he co-founded Paypal and was responsible for its success, he also displayed great acumen from the other side of the table by understanding the potential of Facebook and being one of its early investors.
To succeed, a VC needs multiple skills; investment judgement, ability to add genuine value to portfolio companies, in addition be savvy at building relationships, intent listener with an intuitive ability to read people, predict the future and have good persuasion and negotiation skills.
I am adding my two cents on “What makes a great VC?”
Knowing the dark side — The entrepreneurial journey had taught me much about dark side of Venture Capital. Being acquainted with the challenges and emotions faced by entrepreneurs, I respect them and their efforts to create the “new”. They are weavers of dreams and free spirits. As a VC, I think it is important to be responsive to entrepreneurs, especially if you have to say no, a bit of empathy can mean a lot to the entrepenuer. The young founder in front of you today, who desperately needs the VC to believe in her idea, could be tomorrow’s Bansal or Bahl (if you are not familiar with this, look up FlipKart and Snapdeal). It is important to not forget that.
Honesty in communications — Many a times, I have to take the hard decision of turning down or rejecting an entrepreneur’s request for funds, when I don’t have enough data to predict what will succeed or more importantly who will succeed. VC investment decisions are littered with rejecting great ideas as unsustainable.
In my journey, I found that VCs are poor in communicating the real reason or unwillingness to invest in a venture; or even their views on what they think of your business when they are on your Board. They are in particular very poor in addressing management challenges i.e. giving critical inputs to the young founder/CEO.
I made a decision to never compromise on this ‘honesty in communication’. It is not always popular, but offering respect with honesty is among the best gestures that VCs can make towards entrepreneurs and their spirit of innovation.
Advise seldom; and only at important junctures — Entrepreneurs are always on their toes. They are active and charged 24x7 and don’t have the luxury of switching off when they want to. It is understandable that they love their venture like no one else and want to run it the way they envision. Hence, it is a delicate role — to advise as judiciously as possible and only at important junctures. Entrepreneurs need to find their own path. Too much advice, even well-intentioned, creates a sense of dis-empowerment. It is important to remain behind the scenes and remember that it is the entrepreneur’s show. I apply the same philosophy to my parenting. I have a responsibility to advice and avoid catastrophes but allowing for a few scrapes are good for character building.
Ability to sieve the best from the rest — An entrepreneur is a perpetual underdog. A VC or an investor has to identify and place his bet on the proverbial dark horse.For the underdog entrepreneur to win, she must have faith in herself. Doubt, even an iota of it, is poison. She should have simplicity of vision while being dogged about it. She should not get deterred by obstacles and keep persevering till she actualizes her dream. The single most important factor contributing to successful start-ups is neither their product nor their solutions. It is the people or human capital. If an entrepreneur can hold her people together, listen to them and help them overcome their inhibitions and external challenges, she has the leadership ingredients to succeed.
A great VC is able to identify the leadership traits in the entrepreneur. I have always enjoyed meeting founders with brilliant ideas and execution capabilities but it is their ability to charm, inspire and lead a team towards a common bigger goal and purpose in life that influences the final decision to invest.
My desire at Kalaari has been to create an entrepreneur-led VC culture. I believe that VCs who have been on the other side of the table have the ability to empathize with and nurture founders in their tough, long journeys.
P.S. India has made significant progress in educating the girl child but we still have a long way to go. I have, thus, used the word “she” to represent the entrepreneur, for an India where the statistics will improve positively in favor of women and augment the leadership aspirations of women.
(Disclaimer: Kalaari Capital is an investor in YourStory.)