Welcome to the second post in our five-part series of what makes a top venture capitalist based on insights from current and former partners at Sequoia, Benchmark, Kleiner Perkins, and a16z.
As a reminder, we will look at the following qualities of a good VC:
1. Sourcing
2. Picking
3. Winning the deal / being a good partner / adding value
4. Optimal Fund Size / Liquidity Strategies (when to sell)
Today we will be looking at the traits venture capitalists need to have to be savvy pickers of the many companies they see. This is part two of the series. If you’re joining us for the first time, I suggest you check out part 1 on sourcing first.
Many venture capitalists are initially screened on how many deals they see (sourcing). It’s the first test of good VC that shows you are curious, have hustle, and a strong network. Perhaps the hardest part, however, and what separates the good VCs from the great ones, is our topic for today: Picking.
In this section, I’m going to talk about the qualities top venture capitalists have when determining which company to invest in. After all, top VC firms like Sequoia, Benchmark, Kleiner Perkins, and a16z see hundreds to thousands of companies a year and invest in maybe ten. It’s an extremely selective process that judges VCs on which deals they saw and invested in, which deals they saw and passed on, and how many companies within each bucket succeeded.
The last thing a VC wants is to add a billion-dollar company to their anti-portfolio as one they saw but passed on. Those are the worst metrics.
The best metrics are IRR and Fund Multiple, which are directly correlated to how many companies you invested in that became valuable.
Today, we will discuss how to be a better picker by:
1. Avoiding FOMO but not Bargain Hunting
2. Having an Open Mind and a Prepared Mind
3. Having Confidence
More All Things VC:
To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.
To read more about what makes a top VC with quotes from firms like Sequoia, Benchmark, Kleiner Perkins, a16z, Initialized Capital, and Accel, head to allthingsvc.blog.
You can also follow me on X @Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.