As a former entrepreneur, now on the “dark side” of Venture Capital for the last ten years; here are 10 lessons I got from the investment side of that experience . These lessons still serve me well on a daily basis.
1. Price doesn’t really matter
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If a deal works out, the price was right at some level. Get in good deals, and forget about getting the last dollar in a negotiation for that good deal. If the venture fails, whatever you paid was too much. Yes, in the event of success, you would have made more if you paid less… but that is always true of successful investments.
2. Management is everything
Great management will make the right pivots at the right time. The talent, drive and vision of the management team will determine success or failure. If you’re looking at a great idea, if it’s paired with poor management…run.
3. Never pursue a small idea
It is no safer, no easier and much less rewarding to pursue a small idea rather than a big idea.. What’s the point in trying to change the neighborhood when you can change the world. Small ideas struggle to find their way, so do larger ones, so you might as well be working on the large idea. Small ideas are never worth the trouble.
4. You are not a rock star and never will be one as an investor
The entrepreneurs are the stars and they always will be the stars. If you want to be a star go be an entrepreneur. If you’re an investor, work to make your entrepreneur a rock star. Enable their success and enlist recognition for them and what they’re doing.
5. If you don’t add value outside of board meetings, you’re not adding value
The board meeting is a stilted environment for contribution. If you can’t establish yourself as a worthy advisor outside the board meeting, you’re likely not one in it.
6. Don’t invest in people who ignore good advice
Some people have a world class talent for ignoring good advice. Many of them end up as self employed entrepreneurs . Those kinds of entrepreneurs are not worth investing in. Great people and great business people are more open to alternate points of view. Invest in bright people who don’t or won’t ignore good advice.
7. Try to win in the long term….not the short term
If you strike deals which over time prove unfavorable to the other side, your opponents (and they will view themselves as such) will be motivated to screw you. And they will usually succeed at doing so. Strike agreements that are good now and still fair later.
8. Never panic
There are few things uglier than a scared venture capitalist. Don’t ever be anxious to the point that anyone notices. Sometimes slow and steady wins the race. Not many good decisions are made based on fear, especially business decisions.
9. Be nice to people; it pays well
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Most of the better deal flow comes from people who like me better than my venture capital competitors. Why me and not them? I strive to treat everyone with respect. (I’m sure it’s that and not my jokes…) Be nice to people. It pays off every day.
10. Great deals tend to be great already
In ten years in the VC business, other VC’s haven’t really ever asked me to look at anything other than their dog deals. The great deals are out there but you are going to have to find them yourself. The good news is that they are great deals already. The challenge is to recognize that.
When I started in Venture Capital, my firm directed me to create “proprietary deal flow” which was a term that I didn’t initially comprehend the meaning of. Proprietary deal flow refers to development of a deal pipeline that contains opportunities not seen by others. Today, ten years on, I have pretty good proprietary deal flow. To create that proprietary deal flow, I needed to internalize the 10 lessons listed here -- which might be summarized as be fair, be a good person and look for good people to back.
This article was originally published on BusinessInsider.com
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