So, You Want To Be A VC…

09 December, 2008

Jolly’s Volley: It’s obvious to me that most people believe that the life of a VC is envious, easy, fun-filled, and glamorous, with more time spent on the golf course than in the office and easy money. I have reached that conclusion given the number of resumes I receive from very bright men and women asking to be part of the DFJ team.

This particular article should be titled “Reality check…perception vs. reality of a VC life”. VC life is not as glamorous as one might think. Let me give the readers some candid commentary and informative (yet humorous) examples of what being a VC is really like, especially in India. Here are my top ten examples of real VC life. If, by the way, you still want to be a VC, feel free to send me your CV.

1. Emotional vs. rational: Often I am asked how I decide to invest in a company especially one that is really early stage without much of a team or traction to speak of. The answer, often, is “gut feel”. There is a sense of passion, commitment and excitement around an idea from the entrepreneurs that can be infectious, and either based on experience or instinct, one buys into the ability of the team to be able to execute against a grand vision in a large market.

As a VC it’s easy to get emotionally attached to an investment, especially if one has followed a given company from its inception. As a result, it becomes difficult to detach oneself and act rationally when difficult decisions need to be made. It took me a long time, for example, to learn that in the VC business, like most other businesses, there is an 80/20 rule, where 80% of the returns will come from 20% of the portfolio. A bigger lesson learned was that in the VC business it’s critical not to get emotionally attached to companies, and one needs to spend more time with the winners rather than the losers in the portfolio.

Often, in practice, it’s the other way around. The challenged or struggling companies take up more time since you try desperately to save them. In practice, good VCs learn to let go of the non-performers early and double down on the winners.

2. Thick skinned: As a corollary to the above, it’s also imperative that a good VC have very thick skin. In a VC’s life, one has to often make very difficult decisions such as laying people off, firing individuals, replacing top management and worst case, shutting companies down, knowing all along that these decisions may very well disrupt lives. These are business decisions which have to be made and a VC, as a portfolio manager, has to do the right thing for the limited partners of the fund who have parted with their capital and invested in the fund.

3. Constantly fundraising: Somehow there is a perception that for VCs, capital is easy and all they have to do is jetset to a couple of wealthy families or institutions and $100-200M fund falls into place. The reality is that just like startups, VCs spend a long time fundraising. And just as startups, VCs have to kiss a lot of frogs, so to speak, to get someone to believe. Generally, partners have to be on the road for months during fundraising periods trying to convince LPs that their fund is worth investing in.

While at Garage, I used to tell entrepreneurs that one never stops fundraising. One has to keep speaking with VCs to keep them in the loop even when there is no immediate need for funds. The idea simply is that when funds need to be raised, there are enough VCs who are up to speed on the progress of the company, that the process becomes a lot more efficient. What I didn’t realize actually is that in the VC business, the “constant fundraising” is more the norm than for startups. As a matter of fact, many firms have a partner who spends significant portion of his/her time doing nothing but managing Limited Partner (LP) relationships (both existing and new).

Once the VC has built a stellar reputation, then the job of fundraising does become easier as LPs tend to maintain a handful of relationships for a long time. But it’s often a struggle for the first, second and even third funds within a firm to raise meaningful capital, given that the initial investments may not have yet led to exits. Startups often complain about the catch-22 scenario of needing money to achieve milestones, and achieving milestones to be able to raise capital.

VCs are no different. Imagine being a first time fund with no real investment track record but with a good team competing for LP capital with virtually hundreds of other funds of all shapes, sizes, geographical/stage/sectoral focus. This is no different than a first time entrepreneur raising capital.

4. Traveling in style, yeah right!: I had no idea how much the venture business in India relies on traveling throughout the country. I travel, on average, 1.5 days per week (much to my wife’s dismay). Unlike the US, where hubs of VCs exist on Sand Hill Road or on Winter Street (east coast), such is simply not the case in India. While in the US, there is an expectation that startups will make the pilgrimage to Menlo Park, there is no such practice in India. Here, VCs often have to travel to entrepreneurs.

As an example, DFJ has investments in Delhi, Hyderabad and Mumbai in addition to Bangalore and it’s important to visit portfolio companies to be in close touch with them. I used to love traveling until I started doing it for work within India. I have promised my wife that I will try to make 100% of my trips as day trips rather than staying overnight. Although that means that I am technically home that particular night, it’s not a fun day of travel.

Let me take you through a typical Bangalore-Delhi day trip. Given that it’s a day trip, I have to make it as efficient as possible and that usually means packing it with meetings. So, typically I take a 6 am Indigo flight (which means getting up around 4 am). Landing at 8:30 am (in the unlikely even that the flight is on time), and assuming there is no taxi strike, I grab a taxi for the day to run around town (gurgaon, noida and everything in between) and usually close to the last flight from Delhi back to Bangalore. 80% of time, that particular flight, whether Kingfisher or Jet, is delayed by at least 30-45 minutes. In one instance, an 8 pm flight departed at 1 am getting me to Bangalore at 3:30 am and then home around 4:30 am.

BTW, in that situation there was almost a riot at the Jet Airways Delhi counter and I ended up spending five hours sitting on the floor of a mosquito infested, overcrowded waiting area. By the way, the real reason for the unrest among the Jet Airways patrons was not necessarily that the flight was grossly delayed. It was the fact that Delhi management was continuously showing the flight only 30 minutes delayed even when they knew that the incoming flight from Bangalore had not even left Bangalore (2.5 hr flight).

Lesson for Jet personnel (and for entrepreneurs) – be transparent, especially when delivering bad news rather than sugar-coating or lying about it with the stakeholders. Now, with airlines removing capacity, choices are fewer and hours less convenient, especially if I have to travel to smaller cities such as Ahmedabad or Pune.

5. Work-life balance: A VC’s life is anything but a 9-5 routine job. It’s truly 24x7x365, especially if one is affiliated with a US venture firm. Usually 2-3 days a week I have late night calls with either DFJ colleagues in the US or with Board members of existing portfolio companies, most of whom ironically are overseas. With three little kids it’s critical for me to spend time with them, yet at the same time, I have to spend the required time performing the DFJ India duties.

Late night calls, early morning calls, evening functions, travel (both domestic and international) does take its toll, and often, it’s one’s own health that suffers due to lack of sleep and stress. What I have learned to do is prioritize, and make sure that I say “no” to evening events, visits to certain speaking engagements and only have late night calls when absolutely necessary.

I have known VCs who have been separated or divorced from their spouses due to the stresses that the job entails. Before I took the plunge to move to India with DFJ, I made absolutely sure that my wife was fully on board. Having said that, my wife gets so annoyed with the Blackberry buzzing, she once commented, “I wish I was your Blackberry. At least I know I would be next to you all the time and you would actually pay attention to me.” She was only half joking.

6. Sleepless in India: As indicated in No. 5, as a VC, one has to get used to the Blackberry buzzing 24×7, during the day because of Indian activity and then at night with the US emails. One has to learn to survive at times on 3-4 hours of sleep. From time to time I find myself heading from a late night call with the US right into an early morning day trip to Mumbai, Hyderabad or Delhi. I have not pulled an “all niter” since my days at MIT until I became a VC. With the role of a VC comes significant responsibility, not only fiduciarily as a Board member, but the fact that there are often hundreds or thousands of lives dependent on one’s investment in the respective portfolio companies. Mine might be a unique situation since I do have some VC brethren who have indicated that they simply cannot function on less than eight hours of nightly sleep.

7. An open book: The life of a VC is an open book. And given today’s real time communication environment, the good and more importantly “the bad” can be pasted all over the Net in case someone perceives a VC to have rubbed him/her the wrong way. In my case, I have 9 board responsibilities and another 2-3 portfolio companies with whom I interface. Add to that the travel involved and roughly 200 emails that flood the inbox every day and night, and it becomes a challenge simply to stay on top of all the “to do’s” much less respond to every email.

I make it a point to get back to every entrepreneur who gets in touch. Sometimes it may take longer than one would like. I get absolutely annoyed when an entrepreneur sends an email on a Friday and expects an answer over the weekend. If an answer is not received by Sunday, then a fairly nasty email is sent indicating why the response has been lacking. At that point, I may decide not to waste my time and simply send an email indicating a lack of interest even without even looking at the business executive summary.

My recommendation is to think through a typical VC’s day and then realise that it’s ok if for some reason the response doesn’t come within 24-48 hours. I would also encourage entrepreneurs send VCs a follow up or reminder email, because often if the emails are missed, there are 200/day that pile on top and it’s simply impossible to work through all previous emails.

8. Humility amidst egos: I have written in the past that I have the best job in the world (and perhaps that’s why the resumes are flying in). The reason for that is simple. I can’t think of too many other positions where one interacts with people smarter than oneself on a daily basis. I can never know as much as the entrepreneurs about their particular industry/sector.  For me, being a VC, is about a world of dichotomy. VCs for the most part are very successful, driven people, often with fairly sizable egos (author excluded).

I tend to think myself as a fairly humble, down to earth individual. So, often I find myself, more so in Silicon Valley than India, in awkward situations amidst individuals filled with egos and arrogance. I have learned to accept that as part of the business, and it’s probably no different than other industries, but it may be more visible in the VC world.  Learning to accept and cope with the above has taken me some time.

9. People manager: In business school, my classmates and I used to not think very highly of soft skills, especially those related to human resource management. In practice, I have realised that HR management may be the most important skill one can possess. As a VC, I find myself constantly in the middle of HR issues, everything from hiring, retaining, firing, determining compensation structures, managing ceos, managing the board and often helping ceos manage their teams with specification of roles and responsibilities. These people skills and again being able to skillfully deal with strong personalities is an art that one can only master over time. I am still new enough to the game and am figuring my way around. Remember, soft skills are just as important as hard or technical skills for entrepreneurs and managers.

10. Roller coaster ride: Given the life of a VC as a portfolio manager, within the span of a single day, I can go from the height of euphoria because a portfolio company has hit an amazing milestone, to the lows of the low because a company-making deal fell through at the last minute.

It’s the resilience to be able to deal with that emotional roller coaster and quite honestly to be able to thrive in that environment makes for a good VC. It’s easier said than done. It’s difficult to leave the work behind and switch completely to a father and husband after going home. It has taken me a long time to get to that point, but it’s crucial for one to be able to deal with the ups and downs without letting the stresses of VC work influence personal life in a detrimental way.

Bottom line: World of a venture capitalist from the outside may seem glamorous but reality is anything but, given the physical and emotional stresses that the role can place on a person and his/her family. But if one is able to deal with those challenges, it can be amazingly rewarding, as I am finding it to be.

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So, You Want To Be A VC…

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