GUEST MENTOR, Maynard Webb, founder of Webb Investment Network: When it comes to determining what type of experience cultivates the best VCs, I’m wary of making broad generalizations. I have worked with great VCs from all walks of life—operators, entrepreneurs and financial wizards.
There are many successful VCs who are former entrepreneurs, including Reid Hoffman, Peter Thiel, Marc Andreessen, Jim Goetz, Jeff Jordan, Ben Horowitz and Mark Suster, to name a few.
But just because you’ve been there and done it doesn’t guarantee that you’ll be a great investor. Sports fans know that the best players don’t often make the best coaches, and that some of the best coaches were only middling players. Experience is not the only pre-requisite for success.
One of the core metrics of a VC — and one that bleeds across their financial performance and ability to help — is whether or not they have excellent pattern recognition. This sense of pattern recognition can be developed through a number of routes: from running a company and seeing things first-hand to observing the buying decisions and patterns of CIOs or CMOs. Pattern recognition in a VC is not only crucial to delivering outstanding returns and picking winners, but also to being able to offer timely advice and feedback on a portfolio company’s strategy, product or target market. This pattern recognition is what’s most essential when it comes to investing, as the lion’s share of returns in the VC industry can be attributed to a handful of funds and partners. It’s a hits driven business.In fact, there are great VCs who’ve never operated a company. Bill Gurley was a financial analyst, as was Mary Meeker, now with KPCB. Jim Breyer, who for the past two years was ranked No. 1 on the Forbes Midas List of top technology investors, was a former management consultant at McKinsey who also worked at Apple and HP.He was never an entrepreneur. John Doerr never founded a tech startup, but was one of the most successful salespeople at Intel before he became a VC and funded some of the most successful companies in the world. Mike Moritz of Sequoia Capital was a journalist.
The varied backgrounds of great tech investors show us that there is no direct path to becoming a great VC. Different attributes make them good at different things. Funds can have different strengths and structures, and it is important for entrepreneurs to understand the genesis and mandate of the funds that VCs work with. What are their goals, objectives and operating principles? What are their key selling points? I structured my investment network, WIN, to take advantage of my strengths and the strengths of many of our 80 affiliates as operators and entrepreneurs.
Although starting a company is not a mandate for success as an investor, having a successful track record is. Think pattern recognition again: Past success is the best predictor of future success. If someone has been successful over time and in different situations, it is very likely that they will find success again. When considering this, don’t just look at where the investor came from, but consider what he or she did. Just because someone was at a great company doesn’t mean that he or she alone was great. You have to figure out whether the individual was driving the bus or on the bus. There is a huge difference.