Top 3 Temptations Of Young VC’s (Part 1)

As 2008 comes to a close, I thought I’d reflect on some of the lessons I’ve learned from my first year and a half in the venture business.  I’m clearly still a relative newbie in the industry, but I’m starting to recognize the negative patterns that I am often tempted to fall into.  I’m sure I’m blind to many others, but these are the three most common temptations that I see myself and some of my peers struggle with.  Maybe next near, I’ll have a new top 3, but for now, here they are:

Temptation # 1: Thinking like an employee and not like an owner

Perhaps the most obvious takeaway from this year is that the psychology of an owner is completely different from the psychology of an employee.  This manifests itself in many ways but the most significant is the process of evaluating deals and shepherding them through the partnership.

As a young VC, there is a lot of pressure to source new deals.  But because even the most productive partner might only make a couple investments a year, there is a very high bar, and young VC’s feel a need to prove their worth and show how productive they are.

As a result, I’ve slipped into some bad habits at times.  I’ve thought about how to “get a deal through” rather than the merits of the investment itself.  I’ve shepherded along companies that I thought would show my productivity, even though I knew that there were serious issues I’d never get comfortable with myself. 

In the end, the main problem is focusing too much on getting deals done and not on making great investments.  It’s funny how often I’ve heard that “getting deals done is the only thing that matters”.  This is a long term business, and long after you’ve “gotten a deal done”, you have to live with the investment and try like crazy to build a successful and valuable company.  Obviously, I do get paid to unearth interesting companies that lead to successful deals.  But I find that I have a much better chance of making smart, disciplined decisions if I forget where my paycheck comes from and think more like an owner of our fund and the companies we invest in.

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