PS#072: Should you specialize?
Over the past few weeks, we’ve been discussing the different factors to consider when deciding on the right place for you in the world of venture capital.
Previously, we’ve covered the investment stage and the relevant roles. Now, it’s time to focus on specializing, or thinking about “where” you’re looking to invest (i.e., industry, technology, business model, etc.).
To many aspiring investors, this feels like the most important choice they’ll make as they enter the venture capital industry.
My response to that is “yes and no.”
While it can be really helpful and impactful when starting out, it’s not quite as important as most assume (or as the general market sentiment will make you believe) over the long term.
Let’s look into this in more detail.
It can be an advantage.
First things first, specializing, if done correctly, can definitely play to your advantage, especially when it comes to breaking into the industry.
When trying to break into venture, leveraging your prior experience and knowledge to your advantage is smart. For most of you, you have some industry or technology expertise that could be quite valuable on the investment side. More importantly, that experience could potentially separate you from other candidates. Use it to your advantage.
When you’re first starting out, it can also be quite useful. As I’ve mentioned previously, venture capital investing is actually quite complicated. If you’ve got a strong grasp on the subject matter (i.e., industry, technology, business model, etc.), it will make it easier to focus on the new skills you’re learning around venture investing.
The specialization strategy.
If you do decide to specialize, there are two things that will go a long way…
Prior experience
Investment thesis
Prior Experience
First, if you can demonstrate prior experience, this will be a big advantage (as I mentioned above). Individuals often get into trouble when they are “passionate” about a space, but don’t really have any concrete evidence to support that passion (i.e., no previous work experience, projects, research, etc.). However, if you can demonstrate that experience, interviewers will see it as one less piece that will need to be taught on the job.
Investment Thesis
I believe you should have investment theses in general before pursuing investment roles, but it’s especially important here. If you’re claiming to want to specialize, but don’t have at least one (if not multiple) thesis in this space, you’ll undermine your own candidacy. Even better, if you can tie your experience to the thesis that will help bring the story together.
How to choose a firm?
Start with the end in mind.
If you’ve followed the past few issues of Preferred Shares, you’ll see I’ve worked my way down from stage to role to specialization. Personally, I think this is the right order, but as long as you’re taking all 4 aspects into account, any order works.
Assuming you’ve decided to specialize (or at least use this strategy to break into venture), finding a firm that fits becomes a bit easier…
Simply, build a list of VC firms that fit the stage and specialization
Figure out which of your theses align best with the firm
Start reaching out or targeting those firms
Once you’ve found the right pool of firms, you can start seeing if there are roles available (or create your own).
This is a long, long game. Keep an open mind.
At the beginning of this issue, I mentioned that I didn’t think specializing was as important as many believe it to be, especially aspiring investors.
That’s because this game is long, really long (as an investor AND an operator).
Now, if you’re taking the “bird’s eye view” approach, specializing might be an important part of your long-term career strategy. You might know exactly where you want to be, but it’s about finding the right company or situation. Of course, on the other hand, not specializing could open up new industries that pique your interest from an operating perspective.
If you do decide to pursue venture long term, you’ll likely invest across lots of different areas in your career. Venture capital is all about identifying rapid change within industries, technologies, business models, etc. This can be done as a specialist or as a more general investor. Both have been proven to work.
Of course, from a long-term career perpsective, learning the skills of venture becomes the most important component. You want to learn how this game works, so that you can invest wherever you see fit.
Finally, and as I’ve mentioned, I was once one of those aspiring investors who thought specialization was the end all be all. Turns out, I was wrong. I was much more interested in being a long-term venture capitalist than dedicating myself to one specific area.
I’ll save that story for another issue.
