Breaking Into Venture Capital (2024)

What does it take to be a successful venture capitalist or angel investor? Professor Lee suggests the following:

1. Develop Your Investment Point of View

One of the key pain points for aspiring VCs and angel investors is deciding where to they should put their focus. By using strategic thinking and developing a well-thought-out point of view, investors can differentiate themselves from others and demonstrate their value to startups and co-investors.

This requires a deep understanding of the industry and the ability to identify emerging market trends and opportunities. Start by speaking with experienced professionals in the field, attending industry events, and subscribing to relevant reading resources. Professor Lee recommends several sources including venture capital books, PitchBook and CB Insights for their data insights, Halo Report as it specializes in angel investments, TechCrunch, and Bessemer Atlas to get Bessemer's perspectives on different industries. By immersing themselves in the world of venture capital, investors can start to develop a unique perspective and a more informed investment strategy.

2. Identify and Evaluate Quality Deal Flow

With thousands of startups vying for funding, it can be difficult to know which companies to invest in and how to find them.

To help overcome this challenge, it's important to build a strong network. By connecting with other investors, entrepreneurs, and industry professionals, aspiring investors can increase their access to promising startups and improve their ability to evaluate potential investments.

New investors should hone their due diligence skills by working with experienced mentors or participating in educational programs, such as Columbia Executive Education's Venture Capital: Investing in Early-Stage Startups. This hands-on program provides participants with the opportunity to conduct diligence on real companies, negotiate term sheets, and understand valuation, ultimately equipping investors with the tools needed to identify potential investment opportunities and evaluate quality deal flow.

3. Avoid Common Investment Mistakes

As with any industry, there are common mistakes that can derail the success of aspiring venture capitalists and angel investors. Two critical errors include investing too early and relying too heavily on a company's progress when making investment decisions.

To avoid these pitfalls, new investors should take the time to evaluate a large number of pitches before making their first investment. By doing so, they can gain a better understanding of the startup landscape and refine their investment criteria.

Investors should also focus on other factors beyond a company's current progress, such as the founding team's customer empathy, organized hustle, and ability to be data-driven learners. These traits can be indicative of a startup's potential for success, making them valuable considerations when evaluating early-stage investments.

4. Education and Continuous Learning

To succeed in the fast-paced and competitive world of venture capital, continuous learning is essential. Aspiring investors must stay up-to-date on industry trends, best practices, and emerging technologies to make informed decisions and adapt their investment strategies accordingly.

Education is also key, both through formal programs likeVenture Capital: Investing in Early-Stage Startupsand through informal learning opportunities such as networking events, mentorships, and industry publications. By investing in their own education, aspiring venture capitalists and angel investors can not only improve their skills and knowledge but also demonstrate their commitment to the financial capital industry and increase their credibility among startups and co-investors.

5. Build a Strong Personal Brand and Network

In the world of private equity and venture capital, your personal brand and network can make or break your success. Aspiring investors need to establish themselves as knowledgeable, trustworthy, and well-connected professionals to attract deal flow, raise money and secure co-investment opportunities.

New investors should focus on developing their personal brand by being active in industry events, publishing thought leadership content, and engaging with other professionals on social media platforms like LinkedIn. Investors need to be intentional in their networking efforts, seeking out connections with individuals who share similar interests and investment theses.

6. Embrace Diversity and Inclusion in Investment Decisions

Studies have shown that diverse founding teams are more likely to outperform their less diverse counterparts, portfolio companies and investors who prioritize diversity can benefit from this competitive advantage.

Professor Lee, who is also the founder of 37 Angels, an angel investing network focused on women investors, believes that investors should actively seek out and support underrepresented founders to foster innovation and drive better returns. By incorporating diversity and inclusion into their investment strategies, aspiring venture capitalists and angel investors can not only help close the funding gap for underrepresented entrepreneurs but also create a more equitable and prosperous startup ecosystem.