The majority of today’s successful of venture capitalists have never founded or run a company — or even have long years of VC investing experience.
Dan Mindus and Maxwell Wessel examined the bios of the Top 100 VCs reported by CB Insights.
The data doesn’t support the “founders make the best VCs” idea. Rather, VCs’ rank within the top 100 had no relationship to whether they were former founders, or found their way into VC another way.
Interestingly, there was also no relationship between investors’ years of experience as a VC and their rank on the list.
Foremski’s Take: VC firms compete for startup deal flow based on their expertise in industry sectors and they tout VCs who know their business.
However, having investors with prior business experience in your startup’s market is not always a good thing. It means they already know the problem areas and how things are done and not done.
Yet breakthrough businesses are created when startups are able to challenge the current business models, finding the cracks that let them expand and disrupt.
I’ve heard many successful entrepreneurs say that if they knew what they were getting into they would not have gone ahead with the venture. Startup teams do better if they don’t know all the obstacles, the problems, the pain ahead.
If they don’t know that something is impossible they might figure out a way anyway.
Reid Hoffman, co-founder of LinkedIn, works as a VC partner at Silicon Valley’s Greylock Partners. Prior to LinkedIn he was a senior executive at PayPal when it was acquired by eBay for $1.5 billion.
Hoffman said during one of his podcasts that he is not keen on investing in financial services startups because of his PayPal experience. He knows how very tough that business is and stays away.