The Venture Capital Aptitude Test (VCAT)

If you want additional proof that we’re in a bubble, here it is: young people are trying to get into the venture capital business again. I get several emails a week along these lines:

I’m about to graduate from college where I majored in economics. I’ve always been interested [what does “always” mean for a twenty-something year old, but I digress…] in business and entrepreneurship and ran my school’s entrepreneurship club. I’ve been working as an analyst for Goldman, Sachs, and now I’d like to get into the venture capital business to further my understanding of entrepreneurship and to help startups achieve success by tapping into my knowledge base. I am adept with PowerPoint, Excel, and PhotoShop.

They see a wonderful job: going to cocktail parties and networking events, flying in private jets, and getting sucked up to by entrepreneurs while pulling down a base salary of $500,000/year plus a piece of the upside of selling a YouTube for $1.6 billion. Who wouldn’t want such a job? (Frankly, I would too.)

First, a rare moment of Guy-Kawasaki humility: I am by no means “proven” as a venture capitalist. I’ve been in this game for about ten years, but I don’t have the mega-hit that “makes” a fund. Thus, I may not be a source of good advice about getting into this business, but when has the lack of knowledge stopped a blogger?

Regardless, here’s my advice to all the Biffs, Sebastians, Brooks, and Tiffanys who want to be kingmakers:

Venture capital is something to do at the end of your career, not the beginning. It should be your last job, not your first.

My theory is that when you’re young, you should work eighty hours a week to create a product or service that changes the world. You should not sit in board meetings listening to an entrepreneur explaining why she missed her numbers while you read email on a Blackberry and intermittently spew forth gems like, “You should partner with MySpace; I can also introduce you to a few of the losers in our portfolio.”

Furthermore, entrepreneurs should view any young person who opted for venture capital over “real world” experience with contempt. Why would you want advice from someone whose background consists of working in a college bookstore or cranking spreadsheets at an investment bank? Financial models are almost totally irrelevant because there’s no financial wizardry involved in making a good product and selling the heck out of it.

I’ve concocted the Venture Capital Aptitude Test (VCAT) to help people decide whether they are right for the venture capital business. If you’d like to take this test online, click here. My buddies at an interactive agency called Electric Pulp created the test for me. Knock yourself out!

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Part I: Work Background

What is your background?

• Engineering (add 5 points)
  
• Sales (add 5 points)
  
• Management consulting (subtract 5 points)
  
• Investment banking (subtract 5 points)
  
• Accounting (subtract 5 points)
  
• MBA (subtract 5 points)
  

The ideal venture capitalist has an engineering or a sales background. Engineering is useful because it helps you understand the technology that you’re investing in—for example, is the entrepreneur trying to defy the laws of physics? Sales is useful because every entrepreneur has to introduce a product and sell it. For the third time in this blog, let me say, “Sales fixes everything.”

The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups. Investment banking is bad because it leads you to believe that everything can be reduced to cells on a spreadsheet and that companies should be built for Wall Street, not customers. Moreover, investment bankers are oriented towards doing deals, not building companies. Accounting is bad because it leads you to believe that history not only repeats itself, it predicts the future.

Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.

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Part II: First-Hand Experiences

You may have been in the right places, but you also need the right experiences in those places. Specifically, have you gone through these?

• Been kicked in the groin by a major, long-lasting economic downturn, so that you know how powerless you are. (add 1 point)
  
• Worked at a successful startup, so that you can speak first-hand about the ecstasy of entrepreneurship. (add 1 point)
  
• Worked at a failed startup, so that you understand three things: first, how hard it is to achieve success; second, that the world doesn’t owe you a thing; and third, what it’s like to be fired or laid off. (add 3 points)
  
• Worked at a public company, so that you know what the end goal looks like, warts and all. (add 1 point)
  
• Held a CEO position, so that you have this fantasy experience out of your system and will not try to run the startup from a board position. (add 2 points)
  
• Been an angel investor with your own money, so that you understand the fiduciary responsibility of investing other people’s money. (add 2 points)
  

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Part III: Necessary Knowledge

Finally, can you answer these questions for entrepreneurs? Because this is the kind of advice that entrepreneurs need. (Don’t worry: many current venture capitalists would fail this part.)

• How do I introduce a product with no budget? (add 2 points)
  
• How do I determine whether there’s really a market demand for my product? (add 1 point)
  
• What do I do if customers hate our first product? (add 1 point)
  
• How do I get Walt Mossberg to return my call? (add 2 points)
  
• How do I get to the folks who run Demo? (add 1 point)
  
• How do I get a plug in TechCrunch? (add 1 point)
  
• How do I get the folks at Fox Interactive to return my call? (add 1 point)
  
• How do I dominate a segment when there are five other companies doing essentially the same thing? (add 2 points)
  
• How much time, energy, and money should I spend on patent protection? (add 1 point)
  
• We bet on the wrong architecture for our product; what do I do now? (add 2 points)
  
• What kind of people should I hire: young, old, unproven, proven, cheap, expensive, local, remote? (add 1 point)
  
• How do I get them to leave their current jobs without throwing a lot of money at them? (add 2 points)
  
• How do I tell my best friend that he can’t be chief technical officer just because he was a cofounder? (add 2 points)
  
• How do I get to the buyer at BestBuy to return my call? (add 1 point)
  
• How do I handle a customer who wants to send back his purchase for a full refund? (add 1 point)
  
• How do I fire people? (add 2 points)
  
• How do I lay people off? (add 2 points)
  

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Results

Here’s how to assess your readiness to become a venture capitalist:

• 40 or more points: Call CalPERS and tell them you’re raising a new fund.
  
• 35 to 39 points: Call Sequoia and Kleiner, Perkins and tell them that you’re available.
  
• 25 to 34 points: Send your resume to 2,000 venture capitalists and pray.
  
• 24 points or less: Work until you can score higher and keep flying on Southwest Airlines.
  

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Here’s the bottom line: You should become a venture capitalist after you’ve had the shiitake kicked out of you. This will yield at least two positive results: First, you’ll stand out from the full-of-shiitake artists who entered the business when they were young. Second, you’ll really be able to help your portfolio companies—which is what venture capital should be all about. See you in ten or twenty years.

Read more venture-capital tips and tricks.

Comments

[Marc Duchesne]

One of your best posts ever, dear Guy ! Thank you for the learnings, and the fun ;-)
BTW, those feedback, to help you do even better next time :
- the online test doesn't work under Opera 9 for Mac (all buttons are inactive)
- it works with Flock 0.7.8 - Hence my question : do you really prefer start ups or what ?!!!
- no 'back' function : a problem when you hit the wrong button because you've been too fast ;-)

Now, the real stuff : I scored 39. Any chance for me to join Sequoia ?

[John Dodds]

Sales experience alone or marketing (not promotion/advertising) or both?

[Pierre-Olivier]

Guy,
One of your best... again and as usual.

I get 41 ?!? May be I should have a look to the formulas in my spreadsheet again ? :-)

[Marko Krause]

I was never introduced in this subject like that. Amazing and very interesting at the same time. It´s like a game to bring the things you have to know about venture capital in your mind. I love it.

[John Nguyen]

"Entrepreneurs should view any young person who opted for venture capital over “real world” experience with contempt."

Offbase: Guy probably isn't even going to reply to you. So I think you should reread the post.
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What he really meant was, there's no point in taking advice from someone who's knowledge is an MBA versus taking advice from VCs that have built startups, flipped companies M&A/IPOs, been there and done that etc. Venture capital is certainly not the thing to do right out of college(maybe ibanking). And not everyone is the next Tim D. When I spoke to a venture capitalist(Guy's colleague John Morris), he directed me to the Tech Coast Angels. Venture capital isn't the hoi polloi that the internet makes it out to be. VCs, essentially, invest other people's money. And the whole point of the matter is, why would anyone trust an mba student with a 100million dollar endowment fund? What Guy is advising is probably the easier path to venture capital. Build companies, be there and experience everything, then teach others when others need help. Or invest your own money and create results before trying to become a vc.

[alan patrick]

anyone got walt mossburg's number? :)

[John Nguyen]

ermmm... let the bootstraping begin.

[Peter]

Like your writings about PowerPoint slides, the number of questions should be limited in all surveys. I'm up for 20 true/false and that is it. I almost gave up, but I kept going to earn my 25 or 28.

Thought provoking as always.

[vivid]

I apologize for the length of this post, which is not an attack on Guy's (see the end). Tests such as Guys above should rank very low in priorities after searching deep into what you want to do with your life. I repeat, your life - a ticket with only your name on it and which you can take for a ride that only you will experience. No one can define for you the experience of riding that one ride with that one ticket. I majored in math but did I do it because I did well on my math SAT (which I did). Absolutely no way! Looking back my pursuing math would have happened regardless of how I had scored on my SAT. Why? For starters, math on SATs isn't beautiful math - it's arithmetic, and some of the brightest mathematicians are horrible at it (that and drawing). The real reason I did math was because I simply fell in love with it one day and this is my life I'm talking about. Real math - the one of beautiful proofs and weaves of logic - gives your head an unbelievable high when you really "grok" a proof. You have to love it to get anywhere...to get to the point of constructing a Galois Group and beyond. After doing the hedge fund thing while bootstrapping a startup, I'm now working full time on building my company. Why? Because I love the technology I'm bringing to market and this is my life I'm talking about! The labels and simple formulas of "MBA", "few years at Goldman then..." or "few years at a VC" just wash away against the reality of dealing with your life and what you want to do every single day, every single moment, and with whom. Don't try and escape from that reality. Engage it, follow it, use your intuition, look at the facts, and, most of all, love what you do. For me the fact that I went to top schools like Stanford or schmoozed with big hedge fund traders dosen't mean a thing when I look day to day at the challenges I face in trying to steer my startup to ultimate victory - I don't even think raising a lot of money from a "VC" will help because my end user is going to do the final vote. In any case, meaning in life can be found in any pursuit at any point in your life (see an excellent book by Viktor Frankl called "Man's Search For Meaning"). Perhaps you'll decide that spending time with your loved ones is more meaningful, but, please, it would be too easy to base such decisions on simple tests. Life's not that easy.

By the way, this post isn't trashing Guy's. Learn from the meaning of his words but dig deeper into the meaning of your life. I felt the need to respond because I've noticed that quick "tests" have a really bad influence on our psychology due to our conditioning from childhood Actually I believe Guy has done more for entrepreneurs than all the VCs combined. Why? I'll use myself again as an example. I have experienced several difficult moments while working on my startup, the worst being when my ex-girlfriend dumped me. All throughout I would periodically read something from Guy that inspired me on. There is a way he sometimes puts things into perspective that get right to the truth of the matter. One of his best pieces of advice was to recommend a book called "If you want to Write", by Brenda Ueland. Reading that book gave me the courage to continue creating with confidence. His book entitled "Art of the Start" has invaluable pieces of advice - no doubt the best collection of practical advice for high-tech entrepreneurship at this time that I've read. And for those who've had the chance to see him talk as I did one day at Stanford, you just leave that talk ready to take on the world! And this is what one needs when pursuing a startup because you will get questioned every moment (never mind from a "VC", how about from your own friends, family, and, yep, you guessed it, yourself!!!!!).

[Kimber]

I don't really see the fascination of being a VC (other than the cash, and cash is everywhere). Sort of like being an agent instead of a writer. If I have a book in me, I'd rather be the writer. If I have a startup in me, I'd rather be the entrepreneur.

[Jim Fowler]

My favorite post ever, Guy. Hilarious.

[Brandon]

This test got me thinking about aspects that I had never thought about before for startups. I've recently begun a startup and we'll be launching later next month. I don't necessarily have all the connections and our goal right now is to submit to YCombinator next month.

I have one question that I can't seem to answer myself. The startup I'm working on is currently being created by myself and another. The idea for the site was completely mine, I do all the design work and he does all the programming. I contacted him and we've become friends and now we both just work on this in our spare time. I'm not sure what sort of percentage of the company I should offer him once we begin seeking Investors and turn this into a company. I don't want to go into this 50/50 but I'm not sure what a reasonable offer would be. Maybe someone here could give me some advise as to how to manage this.

[Nick Arnett]

I scored 35. When do I start?

[Ten Million Minus Two]

Classic case of a has-been risktaker. Guy is washed up and has been reduced to crafting new and petty methods to attract attention to ventures that he's recently dipped his paws into. His fire is long gone; he's stuck in that awful state that many like him end up in: rich enough to avoid discomfort, yet terrified of truly taking a real risk again. From a guy who's scored 44 on this so-called test, here's my advice to anyone wanting to know if they're ripe for the world of Venture Capital: if you have to ask ...

*************

Ten Million Minus Two:

Do you feel better now that you got that off your chest? FYI, I don't feel any worse after reading your comments. :-)

Guy

[lurker]

Would be very interesting to send your survey to VCs in your personal rolodex and compile the results (using surveymonkey, etc). Even better is if the responses are not anonymous and you could benchmark against their resumes.

IMHO, most VCs are like thunder: thunder takes the credit for the boom, but it's the lightning that does all the work.

[DavidK]

Good post, and good fun to fill in.

I have little desire to enter VCap work, but always like keeping an eye out for the chatter in other industries as a way of keeping myself on my toes.

I'd argue that my score of 36 isn't enough, I had everything but the ability to plug the product through known channels (techcrunch, demo, WSJ, etc)... being able to spot something and knowing how to make it work on a low budget and then scale is all fine and dandy, but there comes a watershed point in which almost every tech related startup is going to need additional exposure and will be missing their chance if they don't get it. I couldn't provide that, yet I scrape through.

Still, pretty good post, and I especially like the "should be your last job and not your first" line... very very true.

[Brad B]

I scored a SIX!! That's right, 6!! Can I join your firm, or should I say, "When do I start?"

Loved the article. This one of a handful of sites that I visit daily. Keep up the great work.

Brad

[Abhishek Goyal]

Hah! I got just 25! ;-).

[Motts McGregor]

Great post, yes!

I can't believe there was NO mention of lawyers. Most of the former-lawyer VCs I've interacted with have been the most painful of all. They have a mechanistic and strangely idealistic ('the way things *should* be') view of the world that is incompatible with the need for a startup to just GET STUFF DONE in a smarter and more capital-efficient way than they're done at big companies. Also, *everything* is an opportunity to negotiate. It is painful to endure.

(of course there are exceptions!)

-Motts

[Elad]

One of your best posts ever, Guy.
I've yet to meet a VC who scores over 40 in your test :)

[Brad Hutchings]

This test works for picking an investor too. The sales and engineering experience are key. If they send a youngish MBA to sit on your board, it'll be nothing but trouble. And the trouble will stem from everyone thinking he's a clueless fool and him proving it at every opportunity. Been there...

P.S. I scored 21, and I lied on a couple questions.

[Anonymous]

I am not so sure that institutional LPs are seeking old GPs in the sunset of their careers. LPs want GPs who are hungry, who possess an insatiable drive to succeed, and who are going to be around in 10 years. Sure, the old guys in their “last job” may have fire in their belly…, but it more likely to be indigestion.

[Jay Parkhill]

Guy,

The "VCs should have operational experience" definitely has some basis in truth, but I think it is a little overstated. Two comments:

1) Early stage venture capital is very much about hand-holding and mentoring. In later stages it seems to have at least as much to do with financial & market analysis. I.e. your statements are more applicable to the early-stage environment, IMO.

2) Even within the early stage arena, experience does not count for everything. David Hornik comes to mind as someone who might take issue with your comments. Equally, I have met plenty of VCs with operational backgrounds that couldn't get past the fact that they are no longer the CEOs & had trouble working with management instead of being it.

I don't think your post meant to say that experience is everything. I agree that it should be a factor in evaluating investment partners, but disagree if you mean it as a litmus test.

[larry chiang]

I answered "Yes" to a lot of questions but just cuz I 'know' how doesn't mean I execute them all.

[Ernie Vazquez]

I'm wrapping up my first startup (shovelfull's of humble pie over 4 years) and I'm looking for my next gig.

Corporate America is out, been there done that, and there's no question another startup is next (holler at me if you know of any in Texas)

Thanks for the inspiration and keep the posts coming.