Framework: Categorizing emerging micro-VCs by background
The backgrounds we believe have high potential to become great fund managers
Originally published at https://oper8r.substack.com/p/framework-categorizing-emerging-micro
The number of paths into VC as a career is growing
Some very smart people have noted that VC attracts all types:
In my career, I have never seen a position in any industry with more varying criteria than General Partner at a venture capital firm. Some firms hire pure investors, some firms hire operators, some Wall Street analysts, some firms hire sales people, some firms hire lawyers, and others hire reporters. Interestingly, many different models have worked, but in all cases the criteria by which the General Partner is selected says a lot about what you should expect as an entrepreneur from the firm.
…but the VC market is not a monolith, so it’s important to determine what makes a GP effective at a particular strategy.
We are strong believers in making VC more democratic, diverse, and accessible. It seems to be happening: As the VC market gets bigger and more specialized in terms of functional areas, the number of career-paths into the market will continue to increase, giving more people from more backgrounds the opportunity to learn how to invest.
Emerging micro-VCs tend to focus on early-stage - about going from zero to one (pre-seed) or one to ten (seed) - which is where we’ll focus.
Photo by James Pond on Unsplash
Emerging micro-VC means knowing how to recognize and judge early potential
When starting and managing an early-stage VC firm it’s important to combine the ability to identify great opportunities, but also evaluate and manage risk:
Managing other people’s money comes with fiduciary responsibility, which means having experience with investing is really important (there are many programs that help with building a track record).
Investing early requires understanding how to see, recognize, and cultivate opportunities to create value, so it’s also critical to have sufficient first-hand experience with the world of early-stage VC-based companies.
…Are there exceptions?
Yes! We believe that there are individuals that have the potential to launch an exceptional micro-VC, but may not fit the above criteria in terms of investing or startup experience. Instead, they may have an asset or insight that will provide a credible cornerstone to an early-stage firm.
That said, we wanted to share how we look at the world of GPs in emerging micro-VC in terms of background, and how it manifested in our first cohort.
Photo by Will Myers on Unsplash
VCs & Operators & Wild Cards
The goal of this framework is to help identify GPs with outstanding potential. Since it’s easy to make any sort of evaluation framework overly complex, we tried to keep it simple:
VCs: Someone with significant experience investing and apprenticing in VC provides the experience necessary to handle companies and deals - sourcing, picking, negotiating, winning, selling, etc. Professional experiences include established VC, corporate VC, family office, accelerator, etc.
Operators: Someone with experience growing VC-backed (or high-growth technology) startups, which requires understanding how to bring new products and markets together. This can include engineering, management and/or founder roles at start-ups.
Wild Cards: Someone with deep, second-experience dealing with VCs and startups (journalists, lawyers, recruiters / talent agents, PR experts, media professionals, etc.), and an asset or insight that will compel people to back them. The data show that great investors don’t necessarily have to come from a VC firm or VC-backed startup, but have the experience necessary to recognize potential early.
Many people have a mix of backgrounds (e.g. write about VC, then join a VC, then start a VC), so we’re relying on you to judge which background represents you best.
Note: Having investing experience will almost always be a prerequisite for a micro-fund to be backable. But we believe there will be (rare) cases where an individual has an extraordinary asset that will override concerns about investing experience… so if you think you have it, please tell us about it!
Photo by Anny Patterson from Pexels
Oper8r: Not just for operators
We don’t prefer Operators over VCs, or Wild Cards over Operators; but we do see background as a piece of a much larger puzzle.
So why “Oper8r”? One of the reasons we chose the name is because we look at an emerging VC firm as a startup, and the GPs behind the firms as the entrepreneurs building and running that startup, which requires a lot more work than just Tweet-storming and Patagonia-vesting.
Of the GPs in our first cohort, 66% would be considered VCs by background. If you start digging into that group, you’ll find that some of them have been VC-lifers (entire career investing for VC firms), but many of them were previously Operators (including founders) of VC-backed startups.
We’re continuing to prepare for our next cohort, and getting and sharing insights about the market from different members of the ecosystem, so please tell us about yourself (link)!
Also: We love feedback! Please share yours. Comment below, or @ us on Twitter