This change tends to happen because things were going well. You are probably now going to start making or leading your first investments. You get a lot more rope to lead initiatives and build your own personal brand. You’ve gotten the flywheel going and opportunities start coming to you inbound.

That all sounds positive. Here’s what makes this period challenging.

First, lemons typically ripen early. The early investments you worked on or led begin hitting road bumps. The unbridled optimism of your early investing is now checked by the cold truth of reality. Chances are the surprise upsides haven’t happened yet and you are probably taking in more negative data than positive, which becomes a drag on your psyche. This is even worse if you got started during the tail end of a market boom. You probably got your shot a little earlier than you expected to, but ended up leaning into a boom and bust cycle, so you are feeling a fair bit of whiplash. 

Second, the competition gets really fierce. Suddenly, you are not competing against other junior or mid-level folks to surface deals to your team. You are competing head to head against Midas List investors to try to win a deal or at least a slot. The curse of being able to lead investments is that now you have to actually win the opportunity on your own merits. Even if you do benefit from your firm’s positive reputation, you are probably equally hurt by the negative drawbacks of being a principal or a new partner. You are in the jungle, and there are monsters out there.

Third, you have lost some of your optionality. If you were an operator prior to becoming an investor, you probably held on to some of your practical skills for the first few years. You could go on to lead marketing or sales or product or data science somewhere and be equally effective. But as you get deeper into your investing career, your operating skills start to lose relevance in a very rapidly moving market.

So here are a couple thoughts on how to move through this period:

  1. Figure out how to get your mind in order. Maybe start seeing a coach or find a strong peer group that you can trust to talk through these things. It’s easy to feel like this business is fruitless. You can go a whole year without making an investment and wonder what the heck you are doing. Or you can make a few investments in a year, have a few go sideways quickly, and start thinking that you suck at this. You need some people to help you look at this imperfect data objectively and to encourage you to stay positive. Too much cynicism is bad for VC.
  2. Watch out for becoming too conservative. As you gain more experience in VC, the many ways a company can fail become crystal clear. What is less clear is having a good sense of “what is special?” and “what could go right?” You need to be able to balance the objective, negative reasons to pass on an investment with the potential of things going really well. Over the years, I’ve been able to read the investment memos of many experienced investors. What always stands out is that these tend not to read like clinical, factual documents. There is usually a point at which the memo says something like “Despite this risk, I really believe in XYZ, and therefore believe that this is an investment we should be making.”
  3. Remember to act honorably with your early investments that don’t work out, and try to be a non-anxious presence on the board or investor group. Reputations can really be made in tough situations, and when you are early in your career, you don’t have a big body of work to shield you if you are known to be a jerk to founders. I can’t stress enough how important it is not to add to founder anxiety early on, even though it’s natural to do so when you are anxious yourself.
  4. Find a way to be known for something. It can be anything. Maybe a sector focus or a particular initiative. And remember that this isn’t a blood oath. You can try to be known for something, find out that you picked wrong, and then refocus. Remember that Hemant Taneja at GC was their “cleantech guy” for a while and then refocused. Even going through the reps of building a reputation is helpful because it gives you the confidence that your “brand” can be built.

I’m sure folks have other thoughts or suggestions on how to get through this part of the venture career. It can be a bit of a grind. But if you are in the right place with supportive colleagues, you will hopefully get enough time in your role for good things to come to fruition, and for you to feel like you got a real fair shot at making it as an investor.