How can you move from operator to venture capitalist?

In my experience, after successful exits at Redfin, Movoto, & UpNest. Transitioning from being an operator to a venture capitalist (VC) can be challenging. Besides having multiple exits & specialized expertise, building a strong network is crucial. Connecting with entrepreneurs, investors, & industry experts helps source deals and gain valuable insights. Location matters, with vibrant startup ecosystems like Silicon Valley providing opportunities. However, remote work has made success possible from various locations. Being a successful VC requires diligence, attending meetings, staying updated on market trends, & supporting early-stage companies. It's a different mindset, skillset, & network, but with perseverance, even VC is possible.

Venture capital firms love to hire experienced operators as investment partners. Successful operators bring a level of credibility to the firm. Partners who were former operators understand the pressures, risks, and challenges founders face. They can help close the deal with founders when the VC is courting the investment. And these experienced partners can help to effectively mentor portfolio companies. As a successful operator, you have a lot of value to bring to a VC firm and fund.

Evaluate your passion for innovation, risk tolerance, and market insights. Ask yourself what position you want to fill in a venture fund and what benefits you can potentially provide to the founders of the portfolio companies in the fund. Build a network and seek mentorship from experienced VCs. Engage in due diligence on startups. This will help you determine if you have what it takes to thrive in the VC world.

Operators and PE investors have a lot of common skills, the same is not true necessarily for a VC. VCs, especially, at earlier stages need to make highly 'accurate' judgments based on limited data and then stick with it for a long time. Operators either have lots of data OR don't need high accuracy as they can roll-back their decisions quickly that a VC can't. So a VC also needs to take lot more educated leap-of-faith. Can you do it and live with it for the next 10 years?

Having an operator's experience is an excellent asset as a VC; however, not every successful operator can be a VC or vice versa. The classic analogy is not every successful sportsperson can be a good coach. However, being a good sportsman experience is a great asset as a coach. Apart from other apparent points that are mentioned that you will require a big-picture perspective, a strong network of founders and co-investors, etc., the crucial difference is that you will not be sitting in the driving seat, so you require an excellent eye for promising founders and once you found them you need to put a lot of trust in helping them grow. Apart from that, you need to have a multi-disciplinary view, which is not that critical as an operator.

Besides your success as an operator, your network of contacts is valuable to the VC firm. The more you network with VCs, fellow CEOs, and key opinion leaders in your field, the stronger your brand will be. You could think about moderating sessions at industry conferences. Or you could mentor or judge design or business plan competitions at local universities. Or you could join the advisory board of presidents or deans at local universities.

Building a brand is very important to have a long career in the industry. You may choose to be known as someone who knows everyone, someone who knows a lot about a particular industry, someone who is very good at asking right questions during Board Meetings, or someone who can see trends before most others. And then talk about it on whatever channel is the most convenient to you.

Building a brand is very important to transition into the role of VC. VCs do not choose the best founders, which are your fund returners; those founders choose VCs. To get to that winning spot, you need to start adding value to the founder community and get known for your value-add. And that's a two-step process in building your brand. The first part requires a lot of trial and error and free work but remember the long-term gain. Once you are confident you are adding great value, you can market it in your way. LinkedIn is an excellent platform to do that, along with other offline channels, e.g., word of mouth among your niche founder community, being a mentor at an accelerator or other funds, speaking at an event, etc.

Networking with VCs is a good way to understand trends. Trends and tailwinds are large levers of value creation in venture industry. Apprenticeship is also a good way to learn more in this, so choose your mentors wisely and develop a right knowledge-sharing-relation with them.

In this step of networking with VCs, you must first identify your goals to understand the right approach. If you want to land a job in a VC, you need to network with VCs and show your capability. You can be a good scout of the deals, do better due diligence, or support their portfolio by adding value. As VC is a niche but sexy industry, many talented people with excellent credentials want to break into it. However, through your commitment, you can make your place. Offer a few of the above services voluntarily to build trust. If you are launching your fund, networking with other VCs is crucial in building a co-investor pool, which becomes vital in closing a round or follow-on capital, which startups appreciate while choosing an investor.

While the world has become online-focused, physically meeting VCs still has enormous value. You might meet VCs at large industry events. Spending a year attending relevant conferences in your area and meeting interesting VCs and CEOs could be a good strategy to build your network. Try to even moderate a few sessions. Afterward be sure to connect electronically, including on LinkedIn, so that the VC has a record of who you are.

Operators should focus on a few key areas to showcase their skills, such as: Track Record: Highlight successful operational achievements and how they contributed to a startup's growth and success. Industry Expertise: Demonstrate deep knowledge of the industry, trends, and market dynamics relevant to B2B software startups. Deal Sourcing: Identify potential investment opportunities and share how they can add value to these startups beyond just capital. Due Diligence: Showcase their ability to conduct thorough due diligence, including market analysis, financial assessment, and risk evaluation. Mentoring: Offer to mentor or advise early-stage startups to gain experience in supporting companies as a VC would.

In the Private Equity world there is a concept of a searcher, or "independent sponsor." This is an operator who finds a business to buy, and then looks for the funding to complete the purchase. There is not quite this model in venture capital. But, as an operator you could do something like this: collect 1-3 companies that you might want to run and bring them to the attention of some top VCs. Alternatively, you could collect a few interesting companies for potential portfolio inclusion to a few top VCs. If you demonstrate value, a VC firm could easily appoint you as a Venture Partner. This would be a great entry into venture capital for you.

Other roles you might consider as a former operator are venture partner or entrepreneur in residence. If you have access to a large amount of deal flow, this could be a good role for you. Entrepreneur in residence is another possibility. In this role you would either be mentoring portfolio companies, or more commonly looking among the VC's portfolio companies for those in need of CXO roles for you to fill.

The most important mindset shift for operators is that you can not and should not get hands on in building the business - your role is to be an investor and supporter and not a builder. If you do want to build then a venture studio might be the best place to land. The other important role is to understand that your goal is to invest in companies that can return capital to LPs - not companies that you are excited to run or think you could run. I have seen a lot of operators meaningful struggle with the above but the ones that can take the best learnings from their founder experience and have deep founder empathy BUT also understand they serve the interests of their LPs end up becoming incredibly successful.

Run startup accelerator. I broke into VC in just this way. I worked my way through as a founder, participating in startup competitions, getting awards, working in big tech, and doing projects for corporations. Using my knowledge and experience, I knew what founders similar to me from years before needed. Having the soul of an entrepreneur, you can give people much guidance at the beginning of their journey. By showing your ups and downs, you will help them grow faster. After all, it's better to learn from other people's mistakes. By understanding how growing a company with investor capital works, you'll prepare them to raise it wisely. Find ambitious founders and help them. VCs themselves will knock on your door.

Organize an Angel network and invest small tickets ($5-10k) into companies you belive in. Nothing shows your interest in VC as much as investing yourself and having a verifiable track record.