September 30, 2022 – In the start-up world, seasoned operators have experienced product launches, growth cycles, fund-raises, and human capital challenges. They’ve achieved huge successes and endured great failures. Operators know firsthand how to build the ideal infrastructure for sustainable scaling and long-term growth, according to a new report from SPMB’s Emily Wallach.
“Historically, venture capital firms brought in specialists to support the investing team with differing external knowledge sets: product, engineering, go-to-market, or specific vertical sector knowledge as an expert in their field,” said Ms. Wallach. “These executives were typically venture partners or operating partners and served in part-time capacities.”
In a new trend, according to Ms. Wallach, VC firms are now recruiting product, engineering, growth, and data science leaders to their investment teams to evaluate potential target companies and to use pattern recognition to best service their portfolios. Savvy founders understand the value of raising capital from operators-turned-investors rather than from investment bankers-turned-investors in order to inherit critical operational expertise.
However, not all operator-investors are created equal. Ms. Wallach notes that experienced operators may bring any number of skills to the table. So, what are the qualities to consider when recruiting early stage investors, and who exactly should you target when building out your investment team? “Early stage investors typically require a different set of operating skills than a venture growth firm,” she said. “Whereas an early stage firm might be looking for ex-founders or specific product and engineering experience, a venture growth team might need a go-to-market operator to help their portfolio companies scale quickly and efficiently.”
Ms. Wallach recently sat down with five operators-turned-investors to discuss the five qualities that early-stage venture firms should consider when identifying and hiring their next investor:
1. Hire former founders.
Having former founders on your investment teams means you will likely win more deals. Why? Winning deals is innately tied to one’s ability to establish meaningful connections. “When I share with founders that I’m a former founder turned VC investor, there’s an instant connection,” said Allison Williams, principal at JAZZ Venture Partners and former founder and CEO of Yarly. “There is a level of empathy that I have which I think you only achieve if you’ve actually done the crazy difficult job of being a founder. I’ve been in the founder’s shoes, so I know how they want to be treated and supported. That goes a very long way when it comes to winning deals.”
Emily Wallach joined SPMB in 2021 to work alongside Suzanne Heske and support the firm’s investment practice. She identifies and recruits exceptional investors to venture capital, private equity, and asset management firms. In addition to her investment major, Ms. Wallach also recruits cryptocurrency and blockchain talent.
Hiring former founders drives a diligent investment process. Firms have to evaluate how thoughtful the founder is and how dedicated they are to the space they’re playing in. “A lot of people go into the start-up world because everyone else is, or it seems to be a good financial path,” said Ms. William. “But winning requires a level of thoughtfulness and obsessiveness which is so much deeper than that. Does the founder know every competitor? Do they eat and breathe this? Is this their second language? Could they talk about the space for hours? Having done it myself, I feel I can recognize the cues that show the depth of thoughts we’re looking for.”
Founders are now choosing investing partners based on the strength of their previous operating experience. If a founder can gain a confidant in an investor with deep domain knowledge who has “been there and done that,” it can be of tremendous value as founders navigate hurdles they inevitably face along their growth journeys.
“As a former founder, I know firsthand how everything has to be working in order for venture targets to be hit,” said Ms. Williams. “Team and product must be right, but also macro elements have to be shifting in your favor. I bring that level of scrutiny to every deal I do.”
2. Hire for additive networks.
Operators aren’t inherently great investors. Those with strong connections–and who can net new ones for your firm–are the best lead generators, according to Ms. Wallach. “Hiring an investor with a unique network is a tool to refresh your deal pipeline,” she said. “University alumni networks, corporate alumni communities, syndicates, fellowship and accelerator programs, all may unlock new sources of deal flow for venture firms. Beyond providing new deal flow, networks are valuable as they serve as great talent pools from which portfolio companies can recruit.”
They also unlock critical technical knowledge to help founders with growth hurdles, launch successful products, and avoid company-crushing obstacles. “Every single portfolio company will try to recruit and hire growth and product talent,” said Mike Duboe, general partner at Greylock and former head of growth at Stitch Fix. “If you can help them do so through your network, and assess who is good, you are helpful.”
3. Hire “journalists.”
This recommendation may surprise some, but in early-stage venture capital it is less about modeling and financial diligence, and more about knowing what questions to ask entrepreneurs and founders, according to Ms. Wallach. “The best investors have mastered the art of effective probing,” she said. “Having an investor who thinks like a journalist on your team will likely result in more substantial engagement with portfolio companies and potential founders.”
“The best venture investors have the journalistic instinct of tell me more, tell me more,” said Ms. Williams.
4. Hire competitive athletes…
Those who succeed in venture capital tend to thrive in a competitive environment and are able to attain stretch goals; they can source, pitch, and win deals all the while being highly social. Ms. Wallach notes that great social gravitas, even that of highly technical operators, has proven to be extremely valuable.
Related: SPMB Recruits CFO for Pear VC
Several operators-turned-investors revealed that venture capital investing requires more socialization than anticipated. “You have to be or become very comfortable meeting strangers, engaging in small talk, attending and networking at conferences,” said Christine Kim, an investor at Greylock and a former product leader at Uber.
“Our venture capital clients usually prefer to interview product and engineering leaders for investor roles because of their close proximity to the technology,” said Ms. Wallach. “We have seen meaningful impact at firms if technologists also enjoy people and can engage in meaningful dialogue stemming from a place of genuine curiosity.”
“Venture is a sport where you win by making the right connections and connecting the right dots,” said Mila Ferrell, partner at Cervin and former founding member of Zoom’s product team.
5.…who can operate autonomously.
Despite the social demands of the job, venture capital investing can be an independent sport. “Operators usually come from team environments where they have clear reporting lines and resources,” said Ms. Wallach. “Investing can be a significant mindset switch.”
“It’s an incredibly individual job,” said Ms. Kim. “Your success is in your own hands and that can be very scary, but also quite exciting for the right person. It’s up to you to advocate for yourself, go out and get the deals— it’s all yours for the taking.”
“If you are hiring your firm’s first operator-turned-investor or thinking about bolstering your team’s bench, we would love to partner with you or share additional data points from our learnings,” said Ms. Wallach.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media