Operators-turned-investors have taken the venture capital community by storm and unlocked an entirely new archetype of venture investor.
In the start-up world, seasoned operators have experienced product launches, growth cycles, fundraises and human capital challenges. They’ve achieved huge successes and endured great failures. Operators know first-hand how to build the ideal infrastructure for sustainable scaling and long-term growth.
Historically, venture capital firms brought in specialists to support the investing team with differing external knowledge sets: product, engineering, go-to-market, or specific vertical sector knowledge as an “expert” in their field. These executives were typically venture partners or operating partners and served in part-time capacities.
Recently, there has been a new trend within venture capital firms. They are now recruiting product, engineering, growth and data science leaders to their investment teams to evaluate potential target companies and to use pattern recognition to best service their portfolios. Savvy founders understand the value of raising capital from operators-turned-investors rather than from investment bankers-turned-investors in order to inherit critical operational expertise.
However, not all operator-investors are created equal. Experienced operators may bring any number of skills to the table. So, what are the qualities to consider when recruiting early-stage investors – and who exactly should you target when building out your investment team? Early-stage investors typically require a different set of operating skills than a venture growth firm. Whereas an early-stage firm might be looking for ex-founders or specific product and engineering experience, a venture growth team might need a “go-to-market” operator to help their portfolio companies scale quickly and efficiently.
I recently sat down with four operators-turned-investors to discuss the qualities that early-stage venture firms should consider when identifying and hiring their next investor. Here is their advice.
Hire former founders
Having former founders on your investment teams means you will likely win more deals. Why? Winning deals is innately tied to one’s ability to establish meaningful connections. “When I share with founders that I’m a former founder turned VC investor, there’s an instant connection,” said Allison Williams, principal at JAZZ Venture Partners and former CEO and founder of Yarly. “There is a level of empathy that I have, which I think you only achieve if you’ve actually done the crazy difficult job of being a founder,” Williams added. “I’ve been in the founder’s shoes, so I know how they want to be treated and supported. That goes a very long way when it comes to winning deals.”
Hiring former founders drives a diligent investment process. Firms have to evaluate how thoughtful the founder is and how dedicated they are to the space they’re playing in. “A lot of people go into the start-up world because everyone else is, or it seems to be a good financial path,” Williams said. “But winning requires a level of thoughtfulness and obsessiveness that is so much deeper than that. Does the founder know every competitor? Do they eat and breathe this? Is this their second language? Could they talk about the space for hours? Having done it myself, I feel I can recognize the cues that show the depth of thoughts we’re looking for.”
Founders are now choosing investing partners based on the strength of their previous operating experience. If a founder can gain a confidant in an investor with deep domain knowledge who has “been there and done that,” it can be of tremendous value as founders navigate hurdles they inevitably face along their growth journeys.
Hire for additive networks
Operators aren’t inherently great investors. Those with strong connections – and net new ones for your firm – are the best lead generators. Hiring an investor with a unique network is a tool to refresh your deal pipeline. University alumni networks, corporate alumni communities, syndicates, fellowship and accelerator programs, all may unlock new sources of dealflow for venture firms.
Beyond providing new dealflow, networks are valuable as they serve as great talent pools from which portfolio companies can recruit.
They also unlock critical technical knowledge to help founders with growth hurdles, launch successful products, and avoid company-crushing obstacles.
“Every single portfolio company will try to recruit and hire growth and product talent. If you can help them do so through your network, and assess who is good, you are helpful,” said Mike Duboe, general partner at Greylock and former head of growth at Stitch Fix.
This recommendation may surprise some, but in early-stage venture capital it is less about modeling and financial diligence, and more about knowing what questions to ask entrepreneurs and founders.
The best investors have mastered the art of effective probing. Having an investor who thinks like a journalist on your team will likely result in more substantial engagement with portfolio companies and potential founders.
“The best venture investors have the journalistic instinct of tell me more, tell me more,” said Williams of JAZZ.
Hire competitive athletes…
Those who succeed in venture capital tend to thrive in a competitive environment and are able to attain stretch goals; they can source, pitch and win deals all the while being highly social. Great social gravitas, even that of highly technical operators, has proven to be extremely valuable.
Several operators-turned-investors revealed that venture capital investing requires more socialization than anticipated. “You have to be or become very comfortable meeting strangers, engaging in small talk, attending and networking at conferences,” said Christine Kim, an investor at Greylock and a former product leader at Uber.
Our venture capital clients usually prefer to interview product and engineering leaders for investor roles because of their close proximity to the technology. We have seen meaningful impact at firms if technologists also enjoy people and can engage in meaningful dialogue stemming from a place of genuine curiosity.
Mila Ferrell, a partner at Cervin, an early-stage venture firm, and former founding member of Zoom’s product team, said: “Venture is a sport where you win by making the right connections and connecting the right dots.”
…who can operate autonomously
Despite the social demands of the job, venture capital investing can be an independent sport. Operators usually come from team environments where they have clear reporting lines and resources. Investing can be a significant mindset switch.
“It’s an incredibly individual job. Your success is in your own hands and that can be very scary, but also quite exciting for the right person,” said Greylock’s Kim. “It’s up to you to advocate for yourself, go out and get the deals. It’s all yours for the taking.”
If you are hiring your firm’s first operator-turned-investor or thinking about bolstering your team’s bench, we would love to share additional data points from our learnings.
Emily Wallach is director of the investment practice at SPMB Executive Search in New York. She can be reached at email@example.com.