What it takes to be a successful investor (Part 1)
Posted by Arun Uday on July 17, 2008
Taking off on my previous post on some ideas for industry specific funds, wanted to share my $0.02 of learning gathered in my (very) short history in the investment profession about some key success factors for successful investing. Though these will be mostly applicable to PE investing, it could also be relevant to other forms of investing such as the public markets. In my next post, I will link these with some interesting concepts in human cognition and other ideas from pure science (which may come as a surprise to most readers).
1. Insight: This is perhaps the hardest skill to acquire (if it can ever be “acquired” at all) or even measure. Ultimately, it is also what differentiates a John Doerr or a Warren Buffet from other ordinary investors. Insight – the ability to visualize a reality that other mortals don’t normally possess. And it is distinct from all other success factors in a fundamental way, which will be further elaborated on in my next post.
2. Social capital: By this I refer to your people networks. It begins with something as basic as being connected with investment bankers and other agents, who will show you “deals” and opportunities. To make an investment, you need to learn about the opportunity in the first place – as simple as that. It could also extend to your ability to make relevant introductions to your portfolio companies (to potential employees, partners, customers etc.) post investment.
3. Industry knowledge: Have already discussed this at length in my previous post.
4. Brand of the investor: Everyone loves association with coveted brands, and entrepreneurs are no different. All things being equal, a tech entrepreneur would love to brag that he is a Mike Moritz investee or a KPCB portfolio co rather than that of a “lesser brand”. And its not only for ego’s sake that this is so. It also adds instant credibility to a startup, which is so essential for a variety of stuff such as – the ability to recruit talented employees to landing follow on investments to gaining traction with customers etc.
5. People skills: How often have we heard about the “chemistry” between investors and entrepreneurs. I could be the Albert Einstein equivalent of the VC industry. But, if I come across as a hard person to work with, companies wouldn’t like to partner with me. Period.
6. Luck: Finally, the greatest imponderable of them all. The X-Factor, the Midas touch, whatever you want to call it. It seems like an undeniable fact. On the other hand, may be, like they say – luck is the residue of design.
