Guest Author · January 5th, 2010
This post is by Mark Suster, a serial entrepreneur turned VC at GRP Partners. If you like it, check out Mark’s startup advice blog and his tweets @msuster. And if you want an intro to Mark, send me an email. I’ll put you in touch if there’s a fit. Thanks. – Nivi
There are 10 skills I look for in an entrepreneur before writing a check. They are not things that a VC can pick up on in 3 meetings spread out over 6 weeks, which is why I believe that raising VC is something you do over a long period of time, rather than just 2 months of the year. It’s best to meet VCs when you don’t need their money, so they can really get to know you.
In Part 1, I published the first five skills I look for in an entrepreneurs: tenacity, street smarts, resiliency, ability to pivot, and inspiration. I then elaborated on each of the topics in my blog series on VC startup advice.
You need the whole package
Through comment conversations with many of you I tried to emphasize that it isn’t enough to just have one attribute. Being tenacious without the mental flexibility to pivot based on market feedback is a disaster. Having street smarts with no inspirational ability to build teams can yield a great small business but will be difficult to scale into a large VC-backed business.
So we as VCs search for entrepreneurs/founders who have the whole package or as much of it as possible. Few people have it.
These are often amazingly talented people who are really strong in some of the skill areas and there is no shame in this. They often make great team members such as head of products, CTO, head of sales, CFO, etc. Great companies are comprised of great individual point people or functional leaders.
But when I’m looking to write my check I need to look in the eyes of the captain — the maestro who brings the whole orchestra together. And this is where the last post left off — inspiration.
6. Perspiration
Inspiration alone is not enough. We’ve all met inspirational leaders who talk the great talk. They get you all jazzed up after a company meeting but fail to get people to take action or to get things done themselves. Inspiration without perspiration is the equivalent of being a coach — not a CEO. Inspiration is part of what a VC provides, including goal setting, cheerleading, and challenging you. But the CEO needs to move the ball forward a few inches every day. Your VC can’t do that for you.
Celebrity CEOs
As a VC, I also see the apparently great leader who is a great public speaker and networker. He does the conference circuit but is somehow missing from running his company. Someone else is left back at the ranch minding the shop. Worse yet, internal company decisions often aren’t made without the CEO around and in-fighting amongst the direct reports is not uncommon. Talk to any management team with a “celebrity seeking” CEO and you’ll see what I mean.
If you’re the guy at every conference don’t think that people don’t notice. I notice. I love hanging out with you. I’ll gladly drink a few beers with you. But when it comes time to cut checks I’m backing the guy who’s back at the office getting stuff done. I believe great leaders eschew the limelight in favor of building their companies. (before I get attacked in the comments section I’m not saying ZERO conferences — but you need to be selective.)
I would also say that I found some VCs can’t tell the difference because they haven’t been inside an early-stage company so these CEO’s are usually able to raise money. VC money does not equal success.
99% perspiration
The most poignant quote about perspiration comes from Thomas Edison, “Genius is one percent inspiration and ninety-nine percent perspiration.” For entrepreneurs it’s probably a healthy dose of both. I know you think a VC would take for granted that all entrepreneurs work hard but you can tell the difference between those that see their startup as merely a slightly longer version of their last big job and those that are maniacal and focused about what they’re doing.
My favorite example is Jason Nazar, the CEO of DocStoc. There’s no ‘off button’ on this guy. He’s always open for business. If I’m up super late trying to crank out work, I often get IM messages from Jason at 1am. He attends many social events in the LA scene but he seems to always go back to the office afterward. He’s at TechCrunch50 but he knows why he’s there, who he wants to meet, and what he wants out of those meetings. It’s not a boondoggle. It’s all part of his DocStoc obsession.
Starting a company isn’t a job
There was a recent TechCrunch UK article by an anonymous VC (yes, I think posting anonymously is chicken shit) that talked about the work ethic of European tech companies versus those Silicon Valley. I retweeted this article and got some people in Europe telling me it was unfair to stereotype this way. It’s not. The reality is that many Silicon Valley entrepreneurs/companies are more obsessive and maniacal about their businesses in a way that many others around the world are not. The local culture breeds it. I’m not saying it’s good or bad — it just IS. Europe isn’t the only place to garner criticism for not being driven enough. We get the same criticism in Los Angeles.
But that doesn’t have to be you. If you want a “job”, don’t be an entrepreneur. It’s not a job — it’s your life. I recently posted some VC startup advice about the need for entrepreneurs to have a bias toward action or JFDI (a play on the Nike slogan). Well the second sign I had on the wall of my first startup was SITE. Ask anybody who worked with me how seriously I took it. Sleep is the Enemy.
Success breeds competition — from around the world
For every person who comes into my office with a good idea I respond, “Don’t worry about your failure, worry about your success. If you fail, you move on. But if your good idea pops big time then, trust me, there will be three Ph.D.’s from Stanford sharing a cheap apartment in San Jose working around the clock to beat you. They’ll be eating Ramen or Taco Bell every night and saving their pennies to pour into the company.”
It may be unfair, but it’s the reality of capitalism. It’s the dynamic that drives innovation. In the future, the competition won’t only be in San Jose, but also in Shanghai, Seoul, and Bangalore. I only wish more people in the US Congress understood this as well as Brad Feld does. The Startup Visa is one of our most important innovation movements. You think China can’t build great Internet companies? Have you heard of TenCent? It’s more valuable than Facebook.
In conclusion, if you’re not prepared to be “all in”, then you’re not prepared to build a huge company. You think Marc Benioff built Salesforce.com into a multi-billion company by having a good idea? I can tell you from having been on the inside that even now this guy never shuts off. He’s driven. He creates the success at Salesforce.com. He’s a billionaire and he still works harder than many startups. Are you willing to go that hard for that long?
7. Appetite for risk
Entrepreneurs are risk takers. Not wild speculators, but pragmatic risk takers who have a blind belief that they will find a way to make things work. If you put on paper what it would take to be successful in your company, you’d never take the first step, which is why most people don’t. It is often called a “leap of faith” because you jump from safety into the abyss with only the blind faith that you’ll find a way.
If you won’t take the risk, why should I?
I know it sounds trite to say that entrepreneurs are risk takers so let me describe the normal, rational person who I meet on a regular basis. I was recently on TWiST with Jason Calacanis. A caller dialed in to ask us questions about his startup. He was from South America but living in Switzerland and had launched a startup while holding down a day job at a consulting firm (McKinsey if memory serves). He wanted to raise angel money. I told him to quit his job first. If he wasn’t prepared to do that he wasn’t a real entrepreneur.
I know that 80+% of the people listening to me must have thought that was the wrong advice. But to me if you’re not willing to quit and take a risk on yourself, then you’re not confident enough in your own idea and skills. Why should I be? If you’re idea is so amazing that it warrants my hard-earned angel money then why should I take a risk on you if you won’t take a risk on yourself?
The locked-up entrepreneur who wouldn’t jump
About a year ago I had lunch with a guy who I believe is an amazing entrepreneur. He had built and sold his first company and had good ideas for his second company. He gave me the 50,000 foot idea and he was convinced that this idea would be a monster. The problem was that he was still working out the lock-up period in his big company.
He and his partner told me about this new idea over the course of nearly a year. I finally called bullshit. If this idea was so big then why would they risk not being first to market, not building defensible IP for the sake of a few hundred thousand dollars extra in lock-up money at a big company? I think the mind of an entrepreneur would be far more paranoid about yielding his great next idea than protecting his last 20% payout on the last one. They finally quit. I’m enjoying watching their progress.
The MBA who wouldn’t jump
I run recruiting for my VC firm, GRP Partners. About 18 months ago in early 2008 we hired an analyst (pre-MBA), but wanted to wait until after Summer to hire a post-MBA associate. It was May. I received an unsolicited resume from a second-year MBA student at Stanford. He had exactly the skills I was looking for in an associate. I interviewed him on the phone and in person. I introduced him to my partners who liked him. But we weren’t ready to hire an associate yet so I offered him a summer internship. He told me that, as a second-year student, he could only accept a summer internship if I would guarantee him the job in the fall if he performed well. He wanted an assurance that if he performed well, we wouldn’t go through a recruiting process.
I told him I couldn’t guarantee that. If he was confident in his skills he should take the internship. I told him I couldn’t imagine that a guy performing really well on the inside had anything to worry about from a great resume and interview from somebody we didn’t really know. I told him to join and “become part of the furniture.” Without the guarantee, he turned me down. A few months later he called me back and said he would take the internship. I told him, “Sorry mate, it was a one-time offer. You had the door cracked open and should have taken it.”
Was I too harsh? I don’t think so. I want our associate to have empathy for the customers we serve — our portfolio companies. If the person I hired wasn’t cut from the same cloth as an entrepreneur, then how could I expect him to be able to see inside the mind of entrepreneurs?
My leap into venture capital
I joined GRP Partners in 2007 before they raised their current fund (we closed a $200 million fund in March 2009). They told me not to join until after the fund-raising was done. I told them it was now or never. “Once you’re done raising a fund you’ll hire anybody you want! I want to join now while there’s risk. I’ll help you raise the fund. And I’ll take the risk. Pay me half salary until the fund is closed. I’ll pay my own moving costs and if we don’t raise the fund you owe me nothing.”
I figured that the alternative was that I start my third company with no salary and all risk. I had nothing to lose! And so it was. If I was willing to take risks to get into VC then how could I accept an associate who had no cojones? And how can I fund you if you don’t?
To be continued in Part 3 with competitiveness, decisiveness, and more. If you like this post, check out Mark’s blog and his tweets @msuster. If you want an intro to Mark, send me an email. I’ll put you in touch if there’s a fit. – Nivi
Topics Entrepreneurs
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Mark, your posts are getting progressively scarier. Can you not add some less Olympian attributes such as “good at pinball and flipping beer mats” to give us Bobby Normals a chance?
Hi Mark,
Love the article, all true, no doubt.
Just a bit concerned that there doesn’t seem to be room for a work/life balance if you want to really make it (so mothers are definitely counted out of absolute success).
My two cents is if I am to throw money at someone, they have to be likeable. And a ‘life’ tends to make people more interesting. It’s primal but I think liking someone is important too, whether your conscious-Mark knows it or not.
Keep them coming. 🙂
Rebecca,
I agree that personal / work life balance is an issue. I have a post in mind for this that I’ve been wanting to write. It’s a very personal story. Watch this space. But in truth it is VERY hard for people that want a “balanced” life to be early-stage tech entrepreneurs. The market is just so damn competitive and there are so many drags on your time. I think it’s easier to be rounded if you chose something non-tech / less competitive. You don’t need to build the next Facebook to have a meaningful and valuable business.
Thanks for your input.
Re: the MBA who wouldn’t jump
Sounds like the hiring manager’s ego got in the way when there was a chance to bring the MBA student on board.
It is natural to reject someone when they have already rejected you, but it sounds like it would have been a great fit. It’s too bad you guys couldn’t work it out.
I disagree with this approach and would be nervous about being an LP if I caught wind of this decision. It clearly isn’t good to allow emotions to influence business decisions, especially when it comes to talent.
Hey Mike, Mark’s point was that the MBA failed the “risk-taker” test and therefore wouldn’t be a good fit because he wasn’t cut from the same cloth as a great entrepreneur.
Mike,
We hadn’t started a process yet and this gentleman had a chance to come and intern before we started a process. As Nivi said, he failed the “risk taker” test. It wasn’t emotional at all — strictly rational.
Once we kicked off the process we had more than 1,000 resumes. Believe me we yielded plenty of qualified MBA students, many with more experience than that candidate had.
In the end we chose a candidate who had a balance of tech investment banking skills and startup experience (no MBA). We’re delighted with the choice.
This is truly excellent. Like many of you reading this, I live through this stuff day-in day-out. This is straight up, honest and real advice from someone we should listen to. I will forward this to many of my associates. “If you want a “job”, don’t be an entrepreneur. It’s not a job — it’s your life.”
I was going through some post holiday procrastination this week. This motivating post has snapped that spell. Thank you.
Mark/Nivi,
Re: The idea that you don’t have to build the next Facebook to build a valuable business…
Yesterday, I had a conversation with a well known investor who recently raised another fund. He shared his criteria for new investments. He won’t invest unless he believes he can recover his entire fund’s value from the individual investment and follow-ons. For his $75M fund, If he owns 25% of a company at exit he would need to reasonably expect a $300M exit on every company (his numbers). I asked about how invested capital effects this and he said not so much. I blinked.
We then talked about my company (consolidated data visualization API for premium advertising) which needs about $6M to get to free cash flow and he poked at my execution and market risk. It’s a big problem, with known customers, the technology exists, and I’ve done this before. He discounted my revenue and EBITDA projections to come up with a 4 year value of between $150M and $200M (his numbers again). He said I’d have a nice little business but not nice enough. He passed.
I’m hearing this home run mentality more and more. Today, you can build for millions what it used to cost tens of millions to build. I’m glad you guys are promoting ($150M) doubles as good entrepreneurial endeavors. (He said tongue and cheek.)
I hear a lot of investors talk about the “return the fund” investments but the reality is that most traditional funds want to believe that you “could possibly” return 5-10x capital (depending on stage invested).
I would also say that there is a new breed of investor that shuns the “return the fund” mentality, including First Round Capital, True Ventures and others. Of course everybody wants outliers but you can’t know a priori which ones will be.
So you’re probably talking to somebody with who is old school.
Good posts and comments.
Living this day-to-day as an early stage tech company north of the border, you find many of your “work/life balance” goals get pushed out of focus. I think this is almost exclusive to tech. Unfortunate, but true.
The only additional comment that bears on work/life is to know when to call failure and move on. This is lost on many entrepreneurs and often based on an inability to take feedback and listen to customers. Never give up is not a valid strategy. Adapt, overcome, evolve, is.
Agreed. Staying too long if something isn’t working can be as bad as giving up too early. Sometimes it’s worse. You can’t “cut and run” but if it can’t scale you need to look for more creative ways to bring things to a conclusion and preserve as much investment value as possible.
Great article, Mark. Let me first say that, having experienced life on the investor and entrepreneur sides, my gut tells me to agree with your points.
I would be curious to see rigorous research on what characteristics of entrepreneurs actually lead to ‘success’.
For instance, are maniacal entrepreneurs more successful at building values for themselves? Or are they just more successful at creating value for investors? Or is the 80-hour work week a myth that doesn’t increase the odds of success over a 50-hour work week?
Unfortunately I have yet to see the type of rigorous analysis applied to the cycle of entrepreneurship that is applied to corporate or government management. For decades everyone assumed that military leaders were extroverts; when someone finally decided to study the issue they found the opposite to be true.
While at Stanford I was taught that “Angels are former entrepreneurs who have ‘made it’ and now invest in and coach younger entrepreneurs”. Turns out this isn’t true either.
As we enter this glorious new era of entrepreneurship I hope that we can begin examining these questions more closely.
Yeah, but unfortunately I find most “analysis” into these sort of topics flawed, too. It is often the opinion of a researcher who bends the data to say what he/she wants to prove. I don’t believe you can quantify stuff like this. Each person can draw from empirical data to try and draw their own conclusions.
I know in VC we try to do this with our own past portfolios. But I believe strongly that this leads to the “narrative fallacy” described by Taleb in The Black Swam. A priori, I reject any analysis paralysis into this topic as purely falling into the narrative fallacy trap.
As an entrepreneur, you’re sweating bullets, taking risks, inspiring people, selling, and so on. But the one trait I would add is that entrepreneurs need the ability to be transparent and honest with investors, board members and with themselves. The folks I see succeed are self aware and have the skills to “keep it real” with themselves and their fellow-travelers (investors, board members, key employees.) It’s not always pretty, but necessary.
Trust — which emerges from transparency and candidness — is THE currency.
Mark,
Thanks for posting this and the previous entry. As a first time entrepreneur navigating through unknown territory, it was a valuable read to sort of “measure” myself and be able pinpoint areas where improvements can be made (this will last the rest of my life!).
In my humble opinion it sounds like the MBA AND Suster failed the risk taker test! Mark wanted a trial run or something similar with the MBA before he hired him in order to reduce the risk. The MBA wanted a job before he agreed to possibly not being hired at the end of the term. It appears that both individuals were using the same tactic, but from opposite ends of the stick.
Not the case. We weren’t ready to hire someone full time and were willing to wait. I convinced my partners to give the guy a trial and they agreed. Opportunity opened but he didn’t take it.
When he passed we didn’t try to pursue the “try before you buy” approach. We waited as per the original plan, went through the standard recruiting process, chose a candidate and hired him. We’re delighted.
Regarding work/life balance, perhpaps this is one of the reasons that Doug Leone of Sequoia Capital indicated that he prefers to back entrepreneurs under 30 years old, because people over 30 can’t innovate (which is a ridiculous comment). Perhaps his age bias is not necessarily due to innovation but the fact that younger people tend to have less responsibilities (family, kids, mortgage) and therefore can take greater risks and work full time (all day, no off switch). So the questions to you Mark, do you think about the entrepreneur’s circumstances/obligations before investing? Is this a strong consideration when you invest?
http://www.siliconbeat.com/2010/01/05/the-innovation-age-bias-at-sequoia-capital/
Listen, Shai, it’s an unfortunate fact but all investors take into account the personal circumstances of the CEO including age & stage. Nothing is ever 100% and exceptions are made all the time. But it’s true that life as a startup CEO is easier pre kids or when you’re kids are 10+. Ask anyone who has kids in the 0-8 ranges what life is like if you want to be a “present” father or mother.
We’re not ageist and have backed plenty of people in their 30’s / 40’s. In fact, some of these have been our most successful investments. But I’m certain it crosses the mind of most investors as they consider new investments.
Great post Mark! Learned a lot. I especially like the theme of matching a “great idea” with commitment.
I love the “Sleep is the Enemy” line. I can’t count the number of days of the week that I wish I didn’t have to go to sleep.
Great Job Mark… I like your position.
I have been part of both successful and failed startups in the past and (hopefully) learned a few lessons along the way. It’s not easy but it is very rewarding.
We launched RFID TagSource in 2006 with our own money, insane hours, and a passion to serve an unmet need in the market. We put everything on the table and built a great business with lots of great (many Fortune 100) customers and 300% annual growth.
It is difficult for people to understand your position until their own “bits” are on the table. No vacation days, no sick days, no “personal days”, nothing. As the entrepreneur “If you don’t work then you don’t get paid”… simple.
As an entrepreneur I would expect employees and investors need to share that same view.
“It is only after you’ve lost everything that you’re free to do anything” – Tyler Durden
I graduated from college last May and have plans to study accounting. However, I’ve had this idea for a social news site since September and after researching for many months it has completely consumed me. I know that it’s different from the Diggs, Reddits, and Wikinewses of the Web. I know how people work and I know they will want to use my site. My problem is a way to find those beginning users and I’ve been sweating trying to figure it out.
Anyway, it’s 3:19 a.m. where I am and unfortunately this is early for me. I’ve been up late for nights on end researching and this is the best post I’ve read in the past six months. My one weakness is lack of business experience. But it doesn’t worry me. I can learn a lot on my own through research and networking.
The possibility that I could fail more likely than succeed is exhilarating and keeps me focused and working to polish my idea and to adjust it. High risk high return theory I suppose.
Any advice? This series of posts is extremely “real” and in an unexpected way, inspirational. It confirmed a lot of the feelings I am having as a young entrepreneur.
Thanks, Mark.
John,
Piece of advice: Don’t tell anyone. Spend your “research” time building it. Some version of your vision. Then tell your friends on Twitter and let it spread. Your research should have told you that you’ve already got a lot of new competitors doing the same thing, but if you’re passionate about getting your vision out into the marketplace, it just might fly. Or at the very least you’ll fail and not be a newbie anymore…