The Pitfalls of Operators as Investors
It’s become a widely lauded trope in Silicon Valley that Venture Capital is changing and that the best investors used to be founders or operators. I have written about this many times and generally think it’s a good thing for any tech ecosystem. It is a very helpful thing having someone who has built and run a company sitting on your cap-table.
But one observation from personal experience is that the best operators aren’t always the best investors. When I ran the core 500 Startups Accelerator in SF, I had a fairly large team who helped me. Many of them were accomplished and experienced founders who were incredibly helpful to my startup founders. But I would say in many cases, there was a direct inverse correlation to their picking abilities.
I think this happens due to several things:
1) They look at everything from an operator perspective. They literally think “this is such a great opportunity, if something goes wrong I can just come in and help fix stuff.” The problem is that as an investor, you are only an advisor & help at the edges.
2) They don’t always have a bigger picture or large enough sample set to understand or evaluate the business model or team properly
3) They are too empathetic to the founder that they overlook big flaws in business model or market size
I made all the above mistakes as an operator turned angel investor and then Venture Capitalist. Picking is one of the toughest pieces of the investing game to do well.
My angel investments and many of my early VC investments were pretty much write offs. It took me probably about 2 years or so, with lots of guidance from VC friends on the outside and at least 100 investments to really calibrate and learn the trade. At some of the better venture firms, new investors are not allowed to invest for the first year while they apprentice beside some of the more experienced hands.
In fact, historically, if you look at some of the top VCs, they weren’t founders or operators. John Doerr was a manager at Intel, Mike Moritz was a journalist. On my team, the best pickers were actually not ever founders or operators. But they had good instincts and worked on them. It also helped that we just had a lot of investments to the tune of 60-80 investments in a year, so we were able to get a good sample set fast.
Of course, just because you are a good investor, it does not mean you know how to run a startup. This is pretty self explanatory.
It’s a very rare person who is both an excellent operator and investor. Some folks who come top of mind who fit this bill are Kevin Hartz, David Sacks & my friends Mike Maples of Floodgate, Sheel Mohnot/Jake Gibson of Better Tomorrow Ventures and Zach Coelius of Coelius Capital. You are very lucky to get these folks to invest and work with you. So do treasure it.
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