Council Post: Five Lessons For New Venture Capitalists, As Told By An Experienced VC

Managing Partner and Founder of Fort Ross Ventures, a venture capital firm aiming to bring more U.S. startups to Russia.

Because many venture capitalists are ex-financiers, they tend to run in the same circles and have similar experiences before they start or join firms. There are times when this uniformity can actually be a detriment, causing VCs to approach problems or opportunities in the same manner, but it’s generally accepted as part of the world of investing.

That’s not to say it’s impossible to find success without a different background. I personally came to the VC space from IT (though still working for financial institutions), and having a different perspective can help set you apart from everyone else in a very competitive field.

Still, entering venture capital on a nontraditional path meant that I missed out on some of the natural mentoring relationships that others received. There are some lessons I had to learn on my own. While trying and failing can be an excellent teacher, it’s certainly preferable when someone can give you guidance to avoid those situations before they arise.

One of the things I truly enjoy is being that person for the next wave of prospective VCs and founders, regardless of their backgrounds. Here are five pieces of advice that would have served me well before I embarked on my own investing journey and that I believe can help those coming after me.

FOMO is your biggest enemy.

The fear of missing out, or FOMO, isn’t just a cute acronym when it comes to venture capital. Startups with clever founders know how to create this feeling, making it seem as if opportunities to “get in on” their business are too good to pass up and causing you to rush your decisions. Investors from earlier rounds sometimes support this notion as well.

To avoid it, remember that there are many investment opportunities, but only a small percentage of startups are truly worth backing. Think of it like a funnel: You want to be exposed to as many new businesses as possible but invest in only a few. You can feel secure in the thought that you’re never truly missing out — just moving on to see what’s next.

Don’t throw good money after bad money.

It’s tempting when you invest and something goes wrong — which will happen to everyone at some point — to think that maybe the startup just needs more funds to fix what ails it. As we’ve seen with some high-profile companies, though, that’s not necessarily the case, and investing again simply because you invested before can turn into a costly mistake.

Instead, view the situation as if you were starting over and investing from scratch. Make your choice based on the new reality instead of what the company’s circumstances were when you first committed to them. Even if you end up backing them again, at least you’re doing it with the newest, and therefore best, information to support your decision.

Until you receive cash, the deal isn’t closed.

Founders can be crushed when deals they think are written in stone end up falling through. From a VC’s perspective, there are many reasons that a deal could fall through, sometimes at the very last minute. It can be tough on everyone involved, but it happens.

There’s no such thing as a 100% guaranteed deal until the money actually changes hands. It might sound trite, but it’s a reality of the venture capital industry.

Relationships only matter to VCs when things go well.

You’ll hear a lot of people say that venture capital is built on connections and that people are the key component to helping investments come together. VC firms are fond of taking this a step further and saying that relationships are their strength, and this is often the case — as long as everything is proceeding according to plan.

Once things go wrong, everyone protects their own interests. Investors are most concerned with safeguarding their own capital, placing that above the fate of the company and the returns of other investors. No amount of relationship-building can change this fact.

Never be sorry for losing or passing on a good deal.

It sounds obvious, but you’re going to meet many more founders than you can back (remember the funnel?), and no matter how confident you are in your ability to identify the best investments, there’s always going to be the proverbial “one that got away”: a company you didn’t invest in that turns into a superstar.

Here it helps to be like a professional athlete and have a short memory. Or act like the deal you passed on happened in a parallel universe, if it helps you compartmentalize it. Shake it off and move on, because you have many more opportunities in front of you, too many to dwell on any you happened to miss.

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