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Why VCs Should First be Entrepreneurs, and Why Entrepreneurs Should Stay Away From Venture Investing

07/12/2007 10:34 am ET | Updated May 25, 2011

I've been an entrepreneur for a far shorter time than I was a venture investor. But I already know that I should have arranged these two phases of my career in reverse. I would have been a much better venture investor if I started and ran my own company first and I would have an easier time starting my own company without my venture capital experience.

I think few people would argue with the first part: If you know what it takes to get a company off the ground you are better qualified to give advice to others about how to do it. After all, that is the ever-emphasized added value of venture investors who lure entrepreneurs with "smart money" and "significant operating experience" that can help a small company grow. I spent five years in venture and the only venture guys (yes, 99 percent were, in fact, guys) who could actually back up this fancy talk with action had been entrepreneurs at one point in their careers.

I remember being at one board meeting where a VC was having a field day with the CEO of this (very) early-stage company. He was going on and on about the company's lack of focused strategy and questioning the CEOs ability to make definitive decisions. When the rant was over, the CEO asked this VC (who had come to venture after running several fairly large companies) what business accounts that fell outside of the company's core focus this VC would terminate tomorrow if he was running the company. The VC looked at the customer list for a few minutes and in a much less self-assured tone said that he wasn't sure the company could afford to terminate any accounts and still afford its payroll.

Sure, you can go to business school and learn financial analysis that can help you rip apart a company's financial plan. And you can work for a company in an operating role and learn about sales and marketing, without which no young company can survive. But if you've not been an entrepreneur, not had to deal with competing priorities, lack of enough funding or resources, a team that is relying on you for their livelihood, and oh, the immense, never-ending, brain-bursting pressure and emotional rollercoaster that is part of any entrepreneur's everyday life, your lack credibility. And good advice without credibility won't go far.

When I decided to start my own company after spending years in venture capital I often heard people say that oh, it should be much easier for you. And in part, they were right: I had been around start-ups, worked with many very closely and had learned a thing or two about what it takes to put together a company. I also had a fairly good network of people I could go to for advice as well as funding (although we've decide to not raise venture capital, which is a subject worthy of its own post.) But my career in venture capital took away one quality that I believe every entrepreneur needs a lot of: blind belief that things will work out. Starting a company is extremely difficult and odds are stacked against you. There is never enough money, always too many competitors, things don't go according to plan, and many people doubt your success. You have to be a bit naïve and less aware of all the potential obstacles to keep going. (I once heard a very accomplished entrepreneur say that it was easier for him to start his first company than his third because he was much more naïve the first time around.)

After years of analyzing companies, taking apart their business plans, and seeing the endless obstacles they had to overcome, I lack this naïveté. I am fully aware of how difficult it's going to be to succeed at building our tiny start-up into a successful company and at times, this awareness is overwhelming.

So take it from me -- start a few companies before you spend enough time around start-ups to know how ridiculously hard it is. (And once you do it a few times, you can take a break by being a venture capitalist.)