As the Japan startup market has grown 7x in 7 years, the venture capital profession has increasingly gained mainstream awareness and popularity. With more new VCs in the market, and presumably many more on the way, I thought it might be helpful to share a few pieces of advice that I would give to myself when I was just starting out.
While some of these points apply to newly minted GPs, these are mainly focused on current or aspiring investment associates. So if you’re interested in joining a firm and breaking into venture capital, read on…
Be skeptical about advice
As a general rule, you should always be skeptical about advice. Anyone giving advice is giving it based on their own experiences, biases, and incentives, whether they realize it or not. What worked in my experience may not work for you. I and anyone else giving advice will have confirmation bias, availability bias, and a slew of other biases that you should become familiar with in order to distill information. A person’s incentives will also influence what they advise, as well as how they frame it. For example, my incentive for writing this article will become clear at the end of it…
Find your first home run early
Many of the top entrepreneurs want to be funded by the investors that funded the previous generation of top entrepreneurs. Therefore, in a way, a firm or individual’s brand creates a flywheel in this business where success begets success. For emerging venture capitalists, achieving this flywheel effect is arguably of utmost importance to their careers.
The challenge is that venture capital is plagued by power law distribution, where only a small handful of startups generate the majority of the returns. So getting into at least one of these top performers can mean the difference between greatness and mediocrity. All you need is one to catapult your career (you’ll need more to sustain it, but the next ones come easier with your flywheel).
There are many ways to get your first win. For example, investing where less investors compete, providing something rare and valuable to founders, and just straight up hustle. Another factor that can help is joining a firm that already has an established brand and flywheel. These firms are likely to not only see the highest potential startups, but also “win” an investment in them. Knowing which startups will be the next top performers means nothing unless you are able to actually invest in them. Making an offer on behalf of a top brand in VC will increase your chances.
Join a firm where you can make many investments
Investing in startups is not gambling, but there is still a lot of chance involved in this business. That is why venture capitalists put together a portfolio ーif we knew which startup was going to generate the most returns we would invest the entire fund in that one company. But in most cases we don’t, and you won’t either. Therefore in order to increase your chances of finding your first home run, it is important to be in a position where you can make a lot of investments.
That is why I personally believe that for emerging VCs, seed stage is the best place to start. Seed stage firms tend to make many more investments, and as an associate at one of these firms you will likely have a lot more chances at bat to hit a home run.
More importantly, you will have more chances to learn. You can read all the recommended books and blogs on being a venture capitalist, but without actually making any investments, you will miss the most important lessons.
This is a dynamic that I now realize in retrospect. When I first started investing in startups at DeNA, my boss, Akinori Harada, not only allowed me to invest in a lot of startups, but also gave me a lot of freedom to make investment decisions. Of course, he debated my proposals and challenged my thinking, but ultimately trusted my judgement. It was thanks to him that I was able to learn by doing, gaining valuable experience and insight from not just one or two but many startup investments.
I know associates at firms that only make 1 or 2 or even zero investments per year, which is unfortunate because their chances at bat are fewer and their pace of learning is likely slower. In retrospect, I now realize how fortunate I was to learn by investing more frequently.
Find your niche
When you are just starting out, it is also important to figure out why you are unique and valuable. Do you have expertise in a certain field? Connections in a certain industry? And if not, can you build them? Emerging VCs, and indeed anyone early in their careers should try to figure out what makes them both different and valuable. That is how you can differentiate yourself against the more experienced investors.
Figuring out your differentiation is not only important for your brand within the industry, but also within the firm. When you join a firm, each person there will have their own strengths. Map out what those are and figure out where there are open opportunities. Once you’ve found your focus area, invest in developing it further. When you’ve become the authority on it, people in the industry and your firm will think of you when the topic comes up. Our associate, Miyako, for example, specializes in healthcare, and we consult her for every startup opportunity that is even remotely related. Creating that unique value puts you in a position of strength.
At the beginning of this article, I warned you that this advice was written with my own personal incentives in mind. The great reveal is that we are now expanding the firm and looking for associates to join the team! As I’ve written before, there are pros and cons of being a VC but overall it is one of the best jobs in the world. Coral will be expanding over the next few years, and our most exciting years are ahead of us. Apply here if you’re interested in joining the ride!