What are the skills and qualities that differentiate a good venture capitalist from a great one? (2024)

Building on my experience, I inspire to VC, demonstrating the qualities of an impact investor: 1. Shares your values and is committed to building a long-term relationship with you. They should be someone you can trust and rely on for advice and support.2. Comfortable with investing in early-stage impact companies and willing to forgo an immediate return in anticipation of more substantial and impact returns down the road.3. Share your passionate about business and believe in its potential. 4. Excited about the opportunity to help you grow and scale your company. 5. Integrate environmental and social factors into investment decisions, as the ‘normal’ way of doing things.

In our experience, we largely don’t disagree with much if not anything that has already been said in these postings, however, would add one crucial point that was not mentioned, or may have been alluded to, but not expounded upon. Irrefutably, the best VC’s either were either founders themselves, or if not, are sufficiently entrepreneurial to have an ability to understand, resonate, relate, communicate, help, support, engage with and improve founders. That is the je ne sais quoi that is optimal! This in turn engenders trust and the ability for founders to trust and work collaboratively with these VCs to go from zero to one, as Peter Thiel says.

A good venture capitalist serves as much more than a mere source of capital. They function as strategic partners, offering deep industry knowledge, invaluable insights, and a robust network of contacts, all aimed at empowering startups to thriveThey possess an acute understanding of market depth/ readiness, grasp the perfect timing for an idea, and can accurately assess the resources for successful scaling. Founders frequently err by overinvesting, depleting their available resources prematurelyA good VC operates as a trusted sounding board. They leverage their own experience in navigating the complexities of entrepreneurship, enriching the collaboration. In essence, they bring a wealth of practical knowledge to the table

There are too many must-have skills/personalities that a great VC investor shall have. To name a few first:1、Deep understanding of the specific industry(ies) he/she invests in. This serves as core competitiveness that one can stand out from other investors. 2、Sound business judgment. This skillset can only be developed as one gets more exposure to the market. When evaluating early-stage investment opportunities, it is very essential to keep balance between the desire to achieve high investment return and the need to mitigate the associated risks and uncertainties.3、Always stay humble, be sympathetic and keep intellectual curiosity to the market.

I have always found that the best expertise is driven through the experience of one's own. Navigating situations to help bring out the best is probably as important as detecting early signs of success or peril, this happens when u have been part of the action yourself. The best ones are the one who have been founders or operators themselves.

Contrarian take: This is a story told by VCs for the benefit of VCs. I'm definitely guilty of it at times.The best VCs have a *blurry vision* of the future that consists of a robust framework for the first principles of the sector / theme and a relentless desire to update their priors based off of learnings from the entrepreneurs they interact with (who are operating deeper in the space & day to day).

I actually think this is the most difficult act to follow and easier to preach. Most investors are in the business of pattern matching and not really of the contrarian view. Most decisions are made on fuzzy logic on imaginative data, all said and done execution is critical and numbers are an outcome. Spotting this is the most essential trait.

To make sound judgements about an investment, particularly early stage investments where there is limited data available, it is important that the Venture Capitalist is aware of any biases such as confirmation bias in decision making. A structured diligence process covering pre-mortem of investment opportunity and analyzing different business scenarios can mitigate the risk of such biases.

While data-driven analysis is essential, a great VC also trusts their gut instincts and can visualize the long-term potential of an idea or a founder even when it's not immediately apparent.

I would perhaps reframe this section to focus more on Judgement and a deep understanding of the problems and underlying principles that govern a particular domain. It’s the entrepreneur that needs to have the vision. The “vision” that VCs need to have is a deep rooted belief that a particular domain can be reimagined.

As a founder turned investor, and having faced numerous rejections myself while growing the business makes it that much more relatable to build communication channels that are fast, transparent, open, engaging and compounding. Many decisions are binary in the investment sphere, but clear and engaging dialogue help founders reflect and regroup as well. We owe it to each other.

It's not that the exemplary venture capitalist "can" listen actively ask relevant questions and offer constructive advice, "can" communicate expectations, goals and concerns clearly and transparently and negotiate fairly, and "can" handle tough situations and conflicts with grace and professionalism. Exemplary venture capitalists "do" all of the above. "Being able" to do something and doing it are different.The company and the key talent the venture capitalist is working with must be able to rely on your "A" game at all times.However the most critical characteristic and one of the hardest to emulate for most venture capitalists is humility.

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Early stage companies operate in an environment of high uncertainty and in early stage investing, the business models and projections are sometimes meant to just present an opportunity as investable to the investment committee. Any constructive advice and feedback from the Venture Capitalist to the founders should be conversant with those uncertainties.

Building relationships with founders requires more than just business acumen. A great VC understands the emotional and psychological challenges of entrepreneurship and can support founders through the highs and lows.

It is very essential to stay engaged on trends and initiatives across several avenues and opportunities. Individually it's almost impossible to go deep on all aspects and that is where building a strong operator network comes in to play to help dig deep, diligence, mentor and grow opportunities. The best VC's are the ones who build together with the ecosystem.

Regularly meeting and talking to people both inside and outside the Venture Capital ecosystem is important to identify right investment opportunities at the right time. While VC funds often tend to be country specific, it is critical to be aware of the market outside the fund's country of operations to timely identify cross border transfer of market/business trends (for example from US/China to India or India to South East Asia).

Listening, and a willingness to collaborate by extending not just ordinary capital, but relationship capital—meaningful introductions to prospects, partners and team members. People make a business go, and a great VC leverages her or his relationships to incubate and accelerate.

As a VC, the best service we can do to our founders is to bring perspectives outside in to help founders see the macro while dwelling on the micro. This will only happen through setting articulation skills, diligently reviewing information shared by the companies and active engagement to hear what founders need and deliver on them.

Some of the best venture capitalists I know, are or have been an entrepreneur. They know what is like to build, scale and exit a company. Because of their experience they are able to understand the challenges of building a successful business and can provide more tangible support, aside from just writing a check, to portfolio companies.

The ability to realize exits is what defines the best investors. Your investments won't be worth anything if you fail to realize a return. To do this, you must be able to navigate a startup from pre-seed to exit. It would be best if you did it so that exit is a life-changing moment for founders. At different stages of development, you will help in different ways. Achieving product-market fit, scaling, managing the cap table, understanding the rationale of potential buyers, and culturally preparing the organization for acquisition are examples of what will go into achieving a good exit. Not only for you as an investor but for everyone on the cap table.

It is also important for a Venture Capitalist to be aware of biases such as confirmation bias in investments, particularly in early stage investments where there is limited data available. A structured commercial diligence process covering pre-mortem of investment opportunity and analyzing different business scenarios can mitigate the risk of such biases.

Venture capitalists have 2 jobs: (1) write a check that doesn’t bounce, and (2) create meaningful introductions to next round leads (e.g., a Series A investor should play an active and contributive role toward intros to Series B lead investors, and so on - because these sequenced investors should be interacting all the time and running in similar circles). And I suppose there is a #3 - don’t be a jerk. Beyond that, anything else brought to the table is gravy, and is awesome. But it’s extra, and shouldn’t be pitched by VCs or seen by founders as an essential ingredient to the relationship (because frankly, those extras rarely pan out). If you’ve got a VC with #1 and #2, along with #3, that’s #winning.

Some VCs chase market trends and favor companies that align with the prevailing politics of investment committees. They often treat startups as short-term investment vehicles, akin to stock market trading. Others invest in your business's core mission, going beyond financials to offer invaluable mentorship and resources. The latter often stand out through their humility and questions that not only delve into your business but also seek to understand your capabilities and character. Both types of VCs can be valuable, but recognizing their approach early on is crucial. The first type may provide quick capital with limited long-term support, while the second invests in your venture's success on a deeper level. Choose wisely.