“Fortune favours the prepared mind.” — Louis Pasteur.
In a recent session organised by pi Ventures for their pi fellowsprogramme, Subrata Mitra, Partner at Accel, shared his experiences and learnings from his 15+ year career as a VC in India. I had the opportunity to both work with him on this session and attend this closed-circuit event.
This is my attempt at paraphrasing what I took away.
A word of caution.
There is a considerable selection and survivorship bias in the VC market, and one should not focus only on the success stories. In the US, considered the most mature VC ecosystem, only 15% of VC funds outperform the market and the top 2% VC funds generate 95% of VC returns.
The startup environments in India and the West are starkly different. The markets in India are nascent, and capital isn’t as freely available. There are far fewer funds here than in the west (though this is changing) and median cheque sizes are smaller. Execution is also a huge challenge given legacy infrastructure and low predictability of service. For instance, Flipkart had to build out delivery (ekart), payments (PhonePe) and e-commerce to build Flipkart as we know them today.
Lastly, a career in VC is not a short stint, and demands self-motivation and resilience. Feedback cycles are long in this industry (8–10 years), and contrary to popular belief, most of the work starts after you make an investment!
With that, let’s jump in.
It is (mostly) about the people.
Finding great founders is half your job done. As a VC, you need to build conviction on the founder’s ability to dream big, communicate that vision to the entire company, and execute it. Founders will also need to scale with the company, build great teams, and lead them. This conviction does not come easily. To make matters worse, you can’t be certain of your decision until after you’ve invested and see them in action.
Recognising traits of success in individuals and teams can give you an edge here.
Develop genuine empathy for entrepreneurs. Entrepreneurs are hustling and fighting against odds every day. As a partner in their journey, you need to ensure founders don’t lose their fighting spirit. Be truly understanding of the difficulties they face and develop respect and appreciation for the progress they make. It is important to be present and listen.
What is not empathy? Being empathetic does not mean you have to be a yes-man. Think for yourself, assess why certain decisions look good or bad to you, and voice your opinion objectively. Refrain from micro-managing problems and spoon-feeding solutions. Be aware that you are not in the pilot seat and the final decision lies with the founder.
Learn to be a good board member. There is a vital distinction between being a good investor and a good board member. You can be an investor in a public company and have nothing to contribute to its outcome. But your role as a board member in an early-stage company is different and nuanced. To the founder, your role will switch between being a listener, confidant, guide and mentor. Understand which role you need to play and when to play it.
Develop a high speed of unlearning.
Have the maturity and openness to change your point of view. Revisit your learnings in the light of new information. What you knew yesterday may no longer be true. A constant self-assessment and re-evaluation of what you know is the best hobby a VC can build. It will keep you relevant and informed.
Build intellectual & emotional honesty. As a VC, you make a lot of judgment calls through your career and many of these calls will turn out to be wrong. The ones that do turn right may generate ~80% of your fund’s returns. In a business where every decision can be life-changing, practicing intellectual and emotional honesty is crucial — with yourself, the people on your team, your portfolio companies, and your LPs.
Your network is your superpower.
Build, grow and nurture a strong network. In this industry, your network will play a great role in your success. Your network is a sum total of your lifelong experiences and, if done right, will be diverse and ever-evolving. The more effort you put to maintain it, the stronger it gets. Use your network wisely. Make it available to your portfolio companies and help them solve problems and scale.
Trying to add genuine value to the people you meet is a tried and tested way to expand your network. Every little bit helps — helping them solve a business problem, share perspectives on the market they are in, brainstorming ideas, or connecting them to someone who can help.
Good founders will (eventually) come to you. Build credibility. Whether founders want to pivot or make a senior hire, shut down their business or start a new one, they should want to listen to your opinion.
Good founders do their research and pick their VCs, not the other way around.
There is thus, little use in having the same shopping list as everyone else. As you build a track record, repeat entrepreneurs will come to you for their next company. Long-term sourcing can be made proprietary.
There are patterns everywhere.
Pattern recognition is critical. A pattern can be anywhere — in markets, business models, or people. Learning patterns takes experience. While there is no way to short-circuit this process, spending time with senior folks who have been through economic cycles and built large companies will accelerate your learning curve. Recognising patterns takes patience, presence and knowledge.
Like everything else, try to strike a balance between pattern recognition and unstructured thinking. Do not over-index on patterns as history does not always repeat itself.
Stay on top of change. This can include ever-evolving customer preferences, changing regulatory environments, shifts in public market sentiment, disruptive technology and even black-swan events. All this data will come to you in many forms — news, books, network, financials, hearsay. Filtering out what is important (to you) and staying on top of those will better-prepare you for the unexpected and in rare cases, help you foresee it.
Common-sense finance knowledge is important. You need to understand the basics of finance and know how to apply them in the real world. This knowledge will help you both to enter an investment deal and afterward. Build analytical skills to know when your portfolio companies will need to raise capital, and how much.
Understand your risk appetite.
Does the risk-reward equation make sense? As you look and relook at businesses through various lenses (market, business, strategy, product, team), it is important to understand, quantify and compare the risks involved with the expected reward.
Strive to balance between what’s practical and what’s crystal ball gazing. Everyone is prone to bias. Keep this in mind and test your assumptions.
You need to raise capital to invest capital. With seniority, presenting your fund’s investment thesis and raising funds from LPs on the back of it becomes a larger part of the job. Getting exposure to this process by volunteering to work with senior folks on the fundraise process will help you understand the risk appetite and outlook of the fund.
Should I become a VC?
A career in VC is playing the (really) long game and repeatedly seeing failure along the way. While you will play coach, connector and cheerleader through this journey, you will not be the centre of attention. There will be more grit and grind than glamour. The element of luck is also real and you are not in control of external circumstances.
Make peace with these facts and introspect if you still derive satisfaction and joy from helping entrepreneurs build, grow, and scale their businesses.
If your answer is a strong, honest “Yes!” to the above, you’re all set.
(Big shoutout to pi Ventures and the pi fellows for enabling this introspection)