Vauban Insights: Venture Capital's Hidden Past

Introduction

What kind of people does Venture Capital attract? Does their background affect how successful they are in leading VC rounds? Over $2.5 billion in transactions have been processed on Vauban’s platform, here we explore if there is any correlation.

To comment anecdotally on their backgrounds’ contribution to their investing style, we’ve also included first hand experiences from Niklas Jansen, founder of Blinkst and Michael Eisenberg, Founder of Genuine Capital.

Who are the Venture Capitalists of today?

48% of VC Partners have financial backgrounds, and 27% have had startup experience either as a founder or as an operator. Previously, a study found 8% of European VC partners had had startup experience. Given the majority of our GPs are based in Europe, this could be an interesting commentary on the changing landscape of what Venture funding founders can choose from. 

When it comes to investment deals, it’s important they’re led by someone with the competence to both secure the allocation with the startup and raise the funding. It seems having a GP with a finance background might give the round the best chances of success, followed by or startup background might help contribute to a round’s success.

Advantages of VC investors with operator backgrounds

Today as Venture Capital becomes one of the best-performing asset classes in current market terms, the players of those involved are visibly changing. While it used to be an asset class reserved for ex-finance and ultra-high net worth individuals, we now see people with no previous VC experience access deals because of their ability to contribute with very strong networks and highly specialized expertise. 

Knowledge, ability to better understand the viability of business plans, assistance with decisions around hiring, patents, partnerships and growth - these are all benefits that can have tangible impacts on a company’s performance, moving the needle on returns for founders or co-investors far more powerfully than stand-alone capital.

With the above in mind, and technology now opening the playing field to anyone wanting to be a VC, what are the key characteristics helping VC achieve stellar returns? During his research for his book The Power Law: Venture Capital and the Art of Disruption, Sebastian Mallaby interviewed numerous heavyweights of Venture Capital like Vinod Khosla. Anecdotally, what were his comments?

“Venture investors cannot be insular. They have to go out and network. You have to meet and persuade entrepreneurs that your money is greener than the other guy who's trying to get into that deal. You need to be good at making human connections. You need to be extroverted. You need to be out there with a constant schedule. A VC is somebody who gets up and has breakfast with one person and then 17 cups of coffee by the end of the day, because they are  meeting with the 5 engineers that a portfolio company wants to hire, prospective customers for another portfolio company, or with 10 start-ups that they might or might not back. 

Within that category there are these big variations. To boil it down, the successful people I met in Silicon Valley had two out of three of the following things:

  1. They had an advanced engineering degree or some kind of technical skill.
  2. They had been to a top business school, probably Stanford, maybe Harvard.
  3. They had been either the founder or an early employee of a successful start-up.

You don't have to have all three of those things, but having two out of three is pretty good.”

Niklas Jansen, co-founder and director of Blinkist

To better understand the nuances of an ex-operator turned VC, we posed the following questions to Niklas Jansen, the co-founder and director of Blinkist:

Profile photo of Niklas Jansen

How has being a founder shaped you as an investor?
There's a great quote from Warren Buffet: "I'm a better investor because I'm a businessman, and I'm a better businessman because I'm an investor."

I think being a founder has shaped my thinking about how I look at startup ideas, the market, and the founding team. I know what it takes to double the team or triple the revenue or crack certain marketing channels. As a result, I can probably better assess whether the plan is viable and whether the founders are capable of executing it.  

In addition to the idea, the market, and the people, I'm most focused with understanding how the team thinks about milestones and how they plan to achieve them. It's not about creating a perfect plan that is set in stone. Rather, it's about the founders' ability to think through their plans and formulate a clear course of action.

Do you notice a difference between fellow operational investors vs non-operational?
It's hard to generalize, but I think operational investors have more empathy for the founder and their situation because they know what it's like to sit in that position. Also, as an operational investor, you are in a better position to give actionable feedback on operational issues like product management or team building because you have done it before. 

What is the best advice you would give to a founder who wants to become a VC?
Start with syndicating deals to your network. Managing a syndicate is the best way to build a track record and learn if you enjoy doing bigger deals and investing other people's money. VC is very different from angel investing, and before you get involved in partnering with limited partners, you should test and learn if you are good at it and if you enjoy it. And a track record in a syndicate will also help in raising a fund.

Michael Eisenberg, Founder of Genuine Capital

Michael Eisenberg is the Founder of Genuine Capital Ventures. Prior to Genuine Capital, he was the Director of Sales Strategy & Operations for Splunk, Director at Salesforce in San Francisco and an Operating Advisor for BP Launchpad.

Profile photo of Michael Eisenberg

How has your background shaped you as an investor?
I definitely have a non-traditional VC background, or at least that's what I've been told during my informal limited partner and advisor conversations!  However, I do think that my professional background - Tech GTM strategy; restructuring and turnaround, executive advisory - combined with my non-profit, start-up advisory and mentoring experiences have provided me with perspective and flexibility.  Perspective, as it relates to understanding disparate industries, business challenges, and stakeholder impact.  Flexibility, as it relates to people's challenges, strategic decisions, situational awareness and responsiveness.  I believe that my unique edge is my dedicated approach to hands-on advisory, scaleup and commercialization expertise to help configure start-ups for their future; I genuinely enjoy working with the entrepreneurs/start-ups to create the foundational characteristics of success.

Do you notice a difference between fellow operational investors vs non-operational?
I'd like to think of this question a little differently; It's not that you notice a difference between non-operational and operational investors, it's that you notice investors that can balance that dichotomy and can therefore understand when it makes sense to focus on the "big picture" (what are you trying to solve; what are the potential applications, how big can this be) versus when to focus on the "building blocks and getting beyond the numbers" (what are the dependencies for success, how can we mitigate risks).   

What is the best advice you would give to someone who wants to become a first-time venture investor?
I would ask yourself this question: "Is capital better off with me or with somebody else?  If you can't answer why it's better off with you because of your personal capabilities (industry or sector knowledge, contacts, investing approach, founder connectivity, a combination of attributes, etc.), then either rethink your value proposition or maybe an investor path isn't the right one at the moment.

*For more on the history of Venture Capital, we highly recommend reading Sebastian Mallaby’s book ‘The Power Law: Venture Capital and the Art of Disruption’

Antonis Manogiannakis