Decoding the Qualities of a Great VC

Last Friday, I was talking with Parker Thompson of AngelList and creator of Startup L Jackson about a range of topics from investing in pre-seed companies to building a venture firm from scratch. Towards the end of the call, he asked what I thought are the attributes of a successful VC. Rather than answering on the spot because we were essentially out of time, I told him that I’d give the question more thought and I’d email him my thoughts over the weekend.

Later in the day when I had some downtime, I began to consider Parker’s question and asked myself the following related questions: What makes a good VC? What’s important to venture firms, limited partners and founders? Who are the best VCs and what makes them special? After considering those questions, I grabbed my notebook and wrote down the attributes that I felt were essential.

• Curiosity — thirst for knowledge and learning.
• Expertise — business, engineering and/or product chops developed through experience.
• Passion — genuinely excited by new ideas, innovation and entrepreneurship.
• Focus — ability to drown out noise and spend time on what matters.
• Network — authentically develop and maintain relationships at scale.
• Sales — ability to sell and build consensus internally and externally.
• Emotional intelligence — empathize and assess motivations, desires, needs and intangibles.
• Conviction — ability to maintain excitement in the face of opposition and skepticism.

Rather than sending Parker an email with my thoughts, I decided to share the list on Twitter, cc him on the post and participate in the conversation that unfolded. Several founders and investors chimed in publicly and privately to share their views and expand the list I started. While I don’t necessarily agree with all of the suggestions, the other attributes that were mentioned included:

• Quick learner — ability to quickly consume, learn and absorb information about a wide variety of topics.
• Friendly — generally pleasant to be around and likable (while I try to respect everyone, I’m not sure this is a prerequisite for being a great investor).
• 1st principle thinker — someone who can boil complex ideas and phenomena down to their fundamental truths.
• Stoic — remain calm under pressure and turbulence.
• Humble — modest in behavior, attitude or spirit.
• Vision — can see where the world is heading.

This combined list of fourteen attributes is far from comprehensive but I believe it captures many of the important ones. I wonder how the world’s best VCs — investors like Michael Moritz, John Doerr, Marc Andreesen, Shana Fisher, Fred Wilson, Bill Gurley and Chris Sacca — would describe themselves and their most successful peers. I also wonder if their institutions have developed a system to identify the next great generation of investors based on a set of attributes and experiences. Their firms have managed to stay on top for multiple cycles and I don’t think it’s by accident. Given people and networks are at the center of the VC business, perhaps they’ve discovered the hidden answer to the talent equation through identifying, hiring, training and retaining remarkable people.

Several years ago, Jerry Neumann, a respected angel investor in NYC, catalogued the background of every great VC firm’s founders, trying to answer this question. Here is the output from that effort which he titled, VC Genealogy. According to Jerry, the most interesting thing he found is that aside from the expected bankers and lawyers and tech-company execs, there were some journalists in there (Moritz being the most prominent). The qualities of journalists stood out to him because they’re able to track down the right people to interview, ask the right questions, validate the answers they receive and communicate their findings succinctly. Clearly being an effective communicator is critical.

That brings me to the million dollar question: Is it possible to create a platform or system to identify and train the next crop of top venture investors in the world? What would it look like? Perhaps the system is driven by software. Or perhaps it’s a new type of organization in the vein of YC that identifies, trains and networks investors. Maybe it’s a hybrid. I could imagine such a system would score, weigh and rank the candidates based on criteria, attributes and experiences. How would such a program or system grade intangibles or soft skills? Could it identify the power of someone’s network? What are the potential inputs of such a system and what could the output look like? The questions are seemingly endless but it’s a fun thought exercise worth considering.

Maybe this is a pipe dream given there are so few truly great investors and VC is considered to be an apprenticeship business where the learnings take place over many years and throughout cycles. VCs face so many different problems over their careers or even over the course of a portfolio company’s path — that even the best suited have to do a few years of on-the-job learning to be great. Would Fred Wilson be the same investor if he hadn’t experienced the dot com boom and crash at Flatiron Partners? Did Bill Gurley receive years of unique mentorship from the founding partners of Benchmark? What were the key insights Shana Fisher developed while at IAC? Did Michael Moritz discover the ideal founder archetype by writing about Steve Jobs and Lee Iacocca or did he learn from Don Valentine and his predecessors at Sequoia Capital? How did those experiences and interactions shape their investment tastes and philosophies? Given experiences play such an important role in shaping an investor, I’m honestly not sure if it’s even possible to develop a system that delivers alpha by finding and training future investors unless it’s a longer term endeavor.

All that said, experimentation and time will tell us if this is possible. I have a hunch we’ll witness the emergence of a ‘YC for investors’ in the next few years. While venture investors don’t match the speed of innovation as our founder peers, VCs have attempted to create new models and programs over the last few decades. For example, DFJ franchised (brand), 500 franchised (brand), 500 has a VC class (edu), Kauffman Fellows (edu), AngelList syndicates (tech, network), and scouts (network). We’ve seen tech, network, education, and brand as things that people have tried in various combinations to make new VCs. The obvious other options being “hire and train” and “learn on my own dime.” I suspect there’s more to come which is always a good thing.

In closing, I hope any new innovations will be intelligent enough to find the next great VCs based solely on proven attributes and experiences. I also hope these efforts will expand the pool of candidates (think: gender, race, geography). Given the ceiling to break into VC is extraordinarily high — capital, networks, experience, geography — I believe expanding the talent pool would be a good thing for funds and limited partners. That could very well be one of the lasting benefits and contributions these innovations bring to the industry. It’s my hope that in twenty years the list of the great venture capitalists is a diverse set of humans with strong attributes and abilities that have been validated by the giants who helped build the industry.

If you have some thoughts on what makes a great VC and would like to contribute to the discussion, please hop into our thread on Twitter. I’d love to hear from you.

(thanks to Parker Thompson, Jerry Neumann and Leo Polovets for reading an early version of this post)