So You Want to Be a VC

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Women 2.0 conference panel moderator and VC Charles Hudson on how to get into a career with no traditional on ramp.

By Lydia Dishman (Contributing Writer, Women 2.0)

Charles Hudson’s path to becoming a venture capital investor happened by accident. “I didn’t know anything about it,” Hudson confesses with a laugh. “I thought I’d be a portfolio manager,” he explains with a nod to his Stanford MBA. But when his then-manager at excite@home suggested he meet with her husband who was in the process of starting a venture capital firm, Hudson agreed to keep an open mind.

He came out with one thought: “This sounds cool. I’ll do this for a little while.” That turned into a nearly four-year stint at In-Q-Tel, the strategic venture capital group for the Central Intelligence Agency.

That was a decade ago. Not quite ready to commit to being a VC at that early stage of his career, Hudson proceeded to land in a series of different positions. Among them: product manager at IronPort Systems, business development at Google and Serious Business (the latter acquired by Zynga), and co-founder and CEO of Bionic Panda Games. After sitting at all sides of the table in the startup world, Hudson decided to heed the original call and become a partner at SoftTechVC, a Silicon Valley-based early stage investment firm.

Hudson’s circuitous path to investing should come as good news to anyone who’s ever dreamed of becoming a VC. According to Hudson, there is no traditional “on ramp” in this career. Though he knows of people who studied economics or statistics as undergraduates and went on to be hired by firms that actively recruit young talent, Hudson maintains the best path may be a creative one like his own.

Start as a Startup

If you’re going to be an investor, Hudson says the experience of starting your own company can provide valuable perspective. After you’ve done the research and brought a product or service successfully to market, you have a good sense of what works and what doesn’t. Even a failed venture offers lessons in what to do better next time. And former founders find it easier to build rapport with other entrepreneurs.

Hudson says it can be helpful to begin documenting your track record, even in the form of blog posts that include your take on your particular industry segment and predictions for what could develop. “Sound judgement is a big part of what [VC firms] look for,” he notes. Writing allows you to amass a chronicle of your thought processes that can show a future employer why you’d make intelligent investments.

The challenge for former founders, says Hudson, is making the transition from being involved in the day-to-day business and moving towards an advisory role. “As a founder you have a lot of direct control over hiring and firing and market strategy,” he explains. Former founders can often forget they aren’t running the company. “You are much more a coach so you have to be really comfortable letting go of the operational role,” he says.

Earn Your Wings

One job title you won’t see on Hudson’s LinkedIn profile is angel investor. But he’s no stranger to that playing field. Moving in the tight tech circles of Silicon Valley opened up the door to groups who were looking to add investors to fund new ventures.

Rather than plunk down $50,000 or more as a solitary investor, Hudson recommends budding VCs to test their wings within an angel group. In this way, you get to hear a lot of pitches that will refine your investing “notebook,” that is, your list of winning ideas. If you don’t immediately connect with a group, it’s worth your while to take a look at the latest investments on AngelList to see what did well.

“It’s also a good way to see whether you have the stomach for it,” he says, “because it is very hard to make real money in angel investing.” If you happen to have that $50k, Hudson advises spreading the wealth to five or ten companies. This way if one tanks because a competitor did better, all is not lost. “One downside of being a VC is that once you are committed you can’t get your money back.”

Fall In Love

Another prerequisite for becoming a VC is the ability to roll with the punches. “I tell everyone that part of being a VC is kind of like falling in love,” Hudson says. He’s quick to point out that he’s never seen a single startup that’s perfect, but the ability to get over  the flaws and still want to invest is critical.

What comes with that territory? “You feel great when founders are successful and you take it personally when they struggle,” he says, “You can never really separate the emotion.” That’s particularly tough for an investor who’s seen the patterns of success and failure and can predict when a startup is going to hit the skids. “You have to be able to help founders let go,” Hudson says, and be able to admit defeat periodically.

Bottom Line

Hudson cautions those who plan to build their entire career on becoming a VC. “There just aren’t that many positions out there,” he contends. That said, Hudson believes that just like when SoftTech emerged on the scene several years ago, venture capital is ready to be disrupted. Capital efficient startups need less money to get off the ground and he predicts there will be a host of smaller $5 million to $10 million firms emerging that may eventually challenge the established brands.

One thing does ring true. The words of one of his first friends in venture capital, “It’s a great last job.” Says Hudson: “Part of knowing you are ready is that you are ready to be done as an operator.” Funds generally work on a ten-year cycle, he explains, longer sometimes than startups last. “Once you are in, it is very disruptive to leave.”

Learn more about the panel Charles has curated on how to become an investor. Conference tickets are still available.

Lydia, Thanksgiving 2012 2About the writer: Lydia Dishman (@LydiaBreakfast) is a veteran business journalist writing about the intersection of technology, leadership, commerce, and innovation. Her work appears in Fast Company, Forbes, Entrepreneur, Popular Science, and the New York Times, among others.