Here are the results from one of my LinkedIn surveys on the key skill to become a successful VC:
· Finance: 32%
· Technology: 5%
· Sales: 29%
· Experience and Other: 34%.
I would pick sales skills. Here’s why.
Finance experts are good at analyzing historical statements and making projections for mature companies, especially where the trend is not changing. But developing accurate financial projections for a startup, especially in emerging trends. is much tougher due to the inherent problems with emerging markets, industries, trends, and unproven entrepreneurs. That is one reason why 80% of VC-funded ventures fail even though VCs wait for Aha!
Technology skills are useful to analyze the technology’s benefits and disadvantages, especially when the venture is heavily dependent on new technologies, such as in medical products and biotech. But most unicorns, from Microsoft and Apple to Facebook and Airbnb, were based not on new technologies but on applying emerging technologies. Technology skills helped but were not sufficient. Only one percent of unicorn-entrepreneurs in my analysis of 122 succeeded due to the technology.
Successful experience can be helpful. But experience could have a downside for VCs. If the entrepreneurs and executives assume that the best strategy for every business lies in their own experience, they are likely to use solutions that worked for them in past trends. But unicorn-entrepreneurs succeeded by finding the unique winning strategy for their specific emerging trend. Travis Kalanick realized that the best strategy was to focus not on limos, but on car owners, to drive cars. Sam Walton found that the key was to build big stores in small towns. Bezos deduced that the key was to start with books as the foundation to dominate the Internet. Could these unicorn strategies be predicted with experience?
Marketing may be a good skill to have, but marketing often entails spending a lot of money that the venture does not have and raised at a cost that the entrepreneur should not waste. As John Wanamaker put it “half the money I spend on advertising is wasted; the trouble is I don’t know which half.” And there are experts who think Wanamaker may have been too optimistic. Also, Wanamaker was likely talking about a mature company. Marketing waste will be higher in new ventures and emerging trends where there is no history, and everyone is guessing.
There are 4 reasons why VCs need sales skills.
#1. VCs need to be diplomatic before Aha. The world is filled with entrepreneurs with more hopes of success than proof of potential. Successful VCs wait until after proof of potential before investing. Before Aha, a key VC skill is to reject the venture – and do it diplomatically so that the entrepreneur gives the VC another chance after Aha.!
#2. VCs need to sell themselves after Aha because that is when entrepreneurs have options. Sales skills are key when the VC has to outsell all the others and convince the entrepreneur that he/she is the right partner for the entrepreneur and can help the venture become a unicorn. This needs sales skills. John Doerr invested in Amazon when it had just jumped from around $500,000 in revenue the year before to more than $15 million and was due to hit $148 million the next year. Other VCs may have been eager to invest in this potential monster. Doerr was the one who flew to Seattle and sold himself to Bezos.
#3. VCs also need an attractive valuation when they invest. This requires sales skills to convince the entrepreneur that the venture is attractive enough for the VC to invest, but not so attractive that the VC should invest at an unrealistically high valuation.
#4. And then they need sales (and market analysis) skills to help the entrepreneur sell more and grow fast, especially in emerging trends, markets, and industries where the right product-market-competition combination and sales driver have not yet been determined.
MY TAKE: In my experience as a venture financier, it was easier to train entrepreneurs in finance than to teach them how to sell. I have seen many try to teach sales by covering lead generation, qualifying, pitching, and closing. The problem is in the closing. The good ones know how to do it. The great ones know how to do it where the customer ends up thanking the salesperson (for taking their money). I have not seen anyone teach sales in a way that makes an untalented salesperson into a sales maven.