Two Kinds of VCs

I was watching the above video where Vinod Khosla, the co-founder of Sun Microsystems and founder of Khosla Ventures, was talking to a group of Stanford GSB students. The first thing that stood out to me was his brutal honesty. There’s honesty, and then there’s the way Mr. Khosla speaks. His explanation for his honesty is explained in the video, and the justification he provides is actually sound. The other thing that stood out was his explanation of the two types of venture capitalists: 1) those who have experience working in a startup before making the jump to venture capital, and 2) those who go from business school to a venture capital firm without having startup experience. He stands firm on the belief that venture capitalists should have some startup experience in order to qualify as someone who can advise founders on building their company. As someone who works in a company that used to be a startup, I would have to agree on that.

I’m not a venture capitalist yet, but from my experience, rolling up your sleeves and getting your hands dirty at an unproven company is undoubtedly one of the most valuable jobs I’ve performed. I have learned how to build relationships with clients, keep them satisfied, implement the software they paid for, build internal resources to make people’s jobs easier, get a front row seat into how software upgrades work, understand market shifts before they happen and prepare for it, assist in running a part of global user conferences, and work with Product Managers and software engineers to bring useful features to life that customers find as differentiating. All in the span of 19 months to date. That’s not the kind of activity you can find anywhere else. An MBA certainly helps in the venture capital industry, but to actually be a resourceful venture capitalist, you have to understand the founder.

A venture capitalist advising startups without having startup experience is like a law professor teaching a course on trial procedure without having any courtroom experience. You are more prone to giving founders wrong advice, which could actually make or break their company. There are likely going to be specific situations that arise that a founder will need guidance in. If you are that founder, would you trust the advice you receive from someone who doesn’t know the first thing about what it’s like to be in that situation? Would you, as a law student, put your education in the hands of a professor who doesn’t have real-world experience of cross-examining witnesses or speaking to the jury? Scary thought.

In the end, I strongly believe that any startup experience will prove beneficial not only to the venture capitalists, but to the founders seeking advice from them. Wearing multiple hats allows you to attack a problem of focus from almost any angle, and this is absolutely crucial when founders come asking questions. These aren’t lessons you can just find on the internet or in a textbook either.