The beginning of a new fund-raising cycle, such as the one we are currently undergoing, compels us to look to the future-not only at the promise of fresh technology and innovation, but also at the venture capital industry as a whole and how it will fare in the next decade.
While deals are done based on careful due diligence and analysis, personalities play a critical role in the success of each venture and performance of the asset class as a whole. Venture capital has been, and will always be, a people-driven business. So, who will drive the industry in 2015? The next generation of venture capital leaders will undoubtedly carry the torch of their predecessors, but will likely do so in a way that is all their own. The implications for the asset class are significant.
Recently, I sat down with a group of venture capitalists who have been practitioners for only the last decade but who are already making their mark at their respective firms and in the industry. This group differs from previous generations of VCs, many of whom were technology generalists and could apply that base of knowledge successfully across industries. The next generation of VCs comprises individuals who are not only savvy businesspeople; they are highly proficient in the industry sectors where they invest. Their degrees are in specific disciplines such as engineering, genetics and physiology and they have impressive histories at successful tech companies both large and small. These backgrounds reflect the growing complexities that are pervasive in venture-backed industries. Such intricate knowledge is going to be a success driver as the innovations become more and more advanced and an understanding of the science becomes a requirement to make the right investment decisions.
High intelligence is a prerequisite for a venture capitalist, but nothing takes the place of practical experience. The venture capital industry must continue to commit to mentoring young professionals to ensure that its legacy of strong performance will continue. The apprenticeship model that the asset class has relied on for the last century shows no signs of shifting toward the institutional training models now in place in other financial professions, such as investment banking, and rightly so. Venture capitalists learn by doing. Working side-by-side with an experienced investor is the only way to learn the business. The Kauffman Fellow Program, which recently celebrated its 10th anniversary, provides an outstanding opportunity for formal mentoring and education of venture capitalists. Yet, it only touches a handful of talented individuals each year. The venture industry must not only commit to nurturing its young talent, but also to improving diversity within the asset class to better reflect the entrepreneurial community from which it draws. This could perhaps be our greatest cultural challenge of the 21st century.
Another driver that is on the minds of these up-and-comers is the continuity and legacy of their firms. Succession is an issue that will impact the venture capital landscape tremendously in the next 10 years. The predications of a precipitous reduction in the number of venture capital firms in the United States has yet to take place, partially because of veteran VCs leaving established firms to start their own “first-time” funds. Younger VCs have an enormous amount of gratitude toward firm founders that have nurtured their careers, but at the same time want very much to lead some day. Keeping the best and the brightest in-house will require some deliberate thinking around the future leadership of the firm and making those intentions known to key players.
Despite the inevitable changes in the asset class that come with progress, there are several nuances that should remain unchanged until the end of time. The need to syndicate makes camaraderie with fellow venture capitalists and entrepreneurs imperative. There are few financial businesses where one’s personality and demeanor play such an integral role in the success or failure of an endeavor. The most successful venture capitalists of tomorrow will be those who “play well with others” today. One message that has come through loud and clear from the industry is that there is little patience for bad behavior. The networks that are built in the early years of VC investing are the building blocks for deal flow down the line.
Tomorrow’s VC leaders may perhaps be more focused-on industry sectors, on succession, on mentoring-than their predecessors, but only because the changing market landscape demands it of them. Ultimately, the more things change, the more they stay the same. I have no doubt that they will rise to the challenge before them and continue to contribute to the performance of the asset class for decades to come.
Mark Heesen is President of the National Venture Capital Association. He may be reached at