THE BLOG
09/13/2014 12:32 pm ET Updated Dec 06, 2017

8 Entrepreneurship Lessons From a Venture Capitalist

As a venture capitalist with DFJ, lecturer at Stanford and self-proclaimed long time recovering entrepreneur, Heidi Roizen, who was born and raised in Silicon Valley, could teach us a thing or two about what it takes to be a successful entrepreneur. She hit the ground running with her first business right out of Stanford business school, sold it after 14 years, worked at Apple, and then transitioned to the world of venture capital, where she has been ever since.

2014-09-13-HeidiRoizen.jpg
Heidi Roizen - (Twitter: @HeidiRoizen)

In her role as operating partner, Roizen is on the backlines of the deals where she manages the younger deal team, evaluates entrepreneurs and gives advice. Her experience of having played both the part of entrepreneur and venture capitalist has given her tremendous insight into what makes for a successful relationship - which is what it's all about. Roizen's wisdom is priceless for entrepreneur's today and the businesses that want to invest in them.

8 Lessons for Entrepreneurial Success

1. Be passionate about what you are doing - Roizen thinks that the core of being an entrepreneur is to be excited and passionate about what you're doing. Far from the glamorous life, Roizen says that entrepreneurship is really hard - for most people it takes a long time and you don't exactly have a balanced lifestyle while you're doing it. So, before you through caution to the wind and go for it, heed Roizen's advice: "This is an extreme sport and if you are going to do it you better love what you are doing, you better love the people you're working with and you had better understand that there is a high chance that you're going to fail."

Millions of people have listened to Steve Jobs' 2005 commencement speech at Stanford, and for good reason. He nailed the passion issue: "You've got to find what you love... Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle."

2. Be at peace with failure - It sounds contradictory, because you have to do everything you can to try not to fail, but if you do fail (and it's highly likely you will) you need to learn from what you did, pick up the pieces and move on. "You can't let a failure keep you down, because if you stay down after you fail, you are going to stay down for good," warns Roizen. Most successful entrepreneurs that Roizen knows have had failures: "I don't know any successful entrepreneur that doesn't have at least a handful of stories about the things they did that went horribly wrong," says Roizen. What sets the successful entrepreneurs apart is what they did with their failures.

3. Create relationships with venture capitalists - Anyone who reads Roizen's blog know she is all about relationships. To her, the venture capitalist/entrepreneur is a relationship, not a transaction. She says that a common mistake that entrepreneurs make is thinking that the VC is like a bank; someone who will give them their money and then go away and leave them alone. Of course, like banks, VC's do give money to entrepreneurs, but Roizen notes they have a limited amount of capital to invest across a set number of companies that fit into their criteria for stage, sector and timing. However, unlike a bank, the VC is interested in coming in and adding value and ultimately helping the company grow.

If you consider that each venture capitalist is going to meet with a couple hundred of entrepreneurs each year and only select one or two people to tie themselves to for the next several years, or however long it takes to get liquidity in a normal market, that is a very different thing from going to a bank and applying for a loan. She tells entrepreneurs: "99% of the time you meet with a venture capitalist will result in money coming to you. This would seem like a waste of time for an entrepreneur, unless what you are really there to do is build a relationship." So why is there a need for entrepreneurs to have VCs in their life? According to Roizen, if you are raising money, you are going to raise money lots of times and VCs are going to continue to invest money and if they don't give it to you this time, they might give it to you next time. If at first you don't succeed...

4. Get feedback from VCs - If the fact that 9 times out of 10 you are going to get turned down by a VC has got you feeling discouraged, look at the bright side - they take a lot of meetings and hear pitches all day and are oftentimes willing to hear your pitch just for the sake of giving you feedback even though the timing of the deal many not be right. "I might meet an entrepreneur where it is way too early for DFJ to invest, but I want to see if they follow through with the things we discussed in our meeting. If they say they are going to do something in the next 30 days, do they do it? If they say this is the metric theory that they are aiming for, do they hit that metric? If I offered to make an introduction and they get excited about it, do they follow through?" says Roizen. These are the things she is looking to learn and will use to help inform her of whether this is a person she believes is going to get over the finish line and whether she wants to see them again or not.

5. Be a quality person - Roizen would much rather have an A person with a B+ idea, than a B person with an A idea. She is looking for a dynamic person with integrity who is smart and aggressive, a good leader and passionate, able to get people to come along with them, decisive and able to change with the direction of the market. With any great idea the scary reality is that probably another hundred people have that same great idea, so while many people think that the idea is the thing worth protecting, Roizen often thinks it's the team and the execution that will determine who is going to win and who will not.

"If you were a fly on the wall in our partner meetings, the discussion of the person is longer than the discussion of the space and more often than not the decision falls on the ultimate determination of the person and not so much about space," shares Roizen. Naturally, her company loves investing with people they have had success with in the past, but when it comes to investing in people they don't know, they use their network to figure out what they can learn about them.

6. Learn how the venture capitalist business works - Roizen says that every entrepreneur that is going to raise money should read, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, a fantastic book by Brad Feld and Jason Mendelson. Her first pointer to entrepreneurs is to understand the business and the person they are doing business with. The more you closely align the investor and the entrepreneur to want the same outcomes, the less you are going to have the problem of ending up in situations where you don't want the same outcome. Her second pointer is to realize that terms are really important. The worst thing an entrepreneur can do is to layer on preferences. To avoid this, Roizen encourages entrepreneurs to use a reputable attorney, like Fenwick, Wilson, Cooley and Jurvetson, to negotiate their term sheet.

7. Be optimistic but realistic - Roizen tells entrepreneurs that VCs actually don't care what happens in the first year: "We care about helping you make it to year five and we care about surviving to the exit and the size of the exit, so don't over-promise in your early months, because the reality is that usually not everything falls in your direction, and I would much rather have someone come in and say we're not sure we can make revenue for the first six months. We are going to try, but let's not count on that because we may learn something along the way that allows us to create a better product, but it means that we are not going to make that revenue in the beginning." It's a fine line of being optimistic and able to paint a bright future, while being pragmatic and realistic about what's really going to happen.

8. Know what elements drive your business model - There are certain elements that you can get by with just having half or double and the business will still work, while there are other elements that if you get it wrong at all, your business won't work. You need to be an entrepreneur who understands the connection from a business perspective on all of those elements even if you don't know the answer. "If you don't know the answer, but you know the assumption and the effect the assumptions have, then as you actually start playing the game we can assess the data that is coming in and figure out where to turn the dials," says Roizen.

You can watch the full interview with Heidi Roizen here. Please join me and Michael Krigsman every Friday at 3pm as we host CXOTalk - connecting with thought leaders and innovative executives who are pushing the boundaries within their companies and their fields.