Does operating experience make you a better investor? Does investing experience make you a better operator?
I saw an interesting infographic recently that showed nearly zero correlation between VC investor rank (on lists like Midas Touch, CB Insights, Crunchbase, etc) and whether or not the investor had previously been a founder. This got me thinking - what about other investment strategies, and what about those who were operators but not founders?
The function of the operational role (Sales vs. Strategy/Biz Ops vs. Product/Engineering) and the type of investor (public markets vs. private equity buyouts vs. venture/growth equity) likely results in different answers.
Curious to hear different opinions on this one.
Depends entirely on deal size...
The smaller the deal, the less layers between you and management which is where having operating prowess kicks in.
For example:
Company worth $250M. The co. has enough cash flow to where all you have to really do is be able to identify issues, plug in competent operators (with the help of consultants of course), restructure outstanding debt, etc... This is where a background in finance is very, very helpful. You're also likely running a fund at this point, so you need to be able to handle IR, raise capital, know the legal end of thing inside & out, deal with reporting obligations, etc...
Company worth $5M - $10M. You don't have a budget to hire proven operators, and probably no budget to hire consultants. There's not much that can be shuffled around on the financial end of things except in rare circumstances. In this case you need personal ops experience to identify low hanging fruit, make key hires, and sometimes even get sweaty yourself. You can buy companies like this yourself, no need for a fund really, so all those juicy dividends go to you with no need to deal with carry.
You can make 7 figures both ways, just requires a different skill set. Obviously the former is much more scalable but there's no reason you can't scale into the former?
IDK food for thought. I've talked to a bunch of brand name VCs as well, some ops background and some more financial or even academic and they were all reasonably smart/able to add value.
did you notice any consistent differences in the way they behaved as board members/advisors to their portfolio companies? academic/investor type vs the ops/founder types i mean
Ex-operators (myself included!), that are newer to being on the investment side of thing have a tendency to want to jump in and actually execute ourselves, which is a stupid noob mistake I've made a few times.
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