Newton Venture Program recently hosted a STEM to VC panel discussion. As part of this, Robin Klein spoke about their journey from engineering to venture capital.
Robin also addressed career advice for entering the world of venture capital, from which firms to join to how to raise a fund. You can read a sum up of Robin’s advice below, written by Nick Mickshik.
How does a background in science or engineering help in the venture capital field?
Having a science, technology or engineering degree is a decided advantage for a VC professional, because of the complex technologies that VCs have to cope with today. This is one reason why engineers and scientists generally make very good VCs.
And, like venture capital, science and engineering have many branches and many aspects. The most important skill those disciplines can teach you for a career in VC is problem-solving. Scientific training tools are geared towards solving problems – bringing your curiosity to bear on the subject and solving the biggest problems that society faces. It’s about applying science and logic to a particular problem and solving it. But don’t expect it to be a one-to-one relationship in terms of what you learn at university and what you do professionally: it’s more about cultivating a particular way of thinking and a mindset.
Don’t try to be an expert on everything
One of the great challenges for a VC is that you cannot be an expert on everything. The field is becoming more and more fragmented and specialised. To be a general venture investor is probably not good enough today: focus on one or two sectors that you are passionate about because technology moves so quickly. Without focusing specifically on one or two areas, it is very difficult to keep up with developments.
What skills should I try to cultivate?
As a VC, you need analytical skills and numeracy skills, but they are not the only ones needed. Venture capital is very much a people business – it’s about deploying capital behind the entrepreneurs and the people working in the start-up who is going to make the difference.
Anyone with a STEM degree who has an aspiration to become a venture capitalist should teach themselves basic finance (or find a mentor who can teach them). In other words, learn the fundamentals of the balance sheet and profit and loss, and understand how they play out in company operations.
Can I go straight from university to VC?
It is possible to go straight into the VC world from university but, rather than jump straight from science, engineering or technology into venture capital, it’s highly beneficial to have a stage in between. This might take the form of working for a startup, for example, to get some operating experience and to validate your assumptions about the subject areas you want to specialise in.
What are the pros and cons of joining a large versus small VC?
The advantage of joining a small VC is that you get to see a lot more of the ‘big picture’. The advantage of joining a large one is that you are likely to be given a great deal of data and will spend a lot of your time digging deep into the data. Especially for those from a non-tech background, this will teach you a lot about the aspects of VC investing that you probably don’t know about yet.
What advice can you give someone who is considering launching their own fund? How do you find limited partners to back you?
Unfortunately, the most important criteria that limited partners (LPs) look for in a fund is a track record. This is a vicious circle – how do you get a track record without having the capital to invest, and how do you get the capital without having a track record?
The classic path is to start doing some relatively small angel investing and demonstrating that you can identify companies and founders that are worth backing. Surprisingly, if you can show a successful track record, it doesn’t matter how much or how little capital you actually deploy. Building a track record is the most important way of raising capital to launch a fund. (For example, after training and working as an engineer, Robin Klein, Founding Partner at UK-based VCs LocalGlobe and Latitude, did angel investing for more than 10 years before starting a fund. He also spent one day a week at a large fund learning about fund management, then three days a week with VC firm Index Ventures while doing angel investing on the side. He describes that experience as “a mutually beneficial arrangement because I was learning a tremendous amount about venture from some of the best venture capitalists in the world, whilst at the same time building my own track record. There is no substitute for doing it and angel investing is one way of doing it, as is working part-time at a VC if you can organise it.”
How can VC help tackle real-world problems?
VC can have a hugely transformative impact on the world through empowering businesses that provide the products or services we use in our daily lives and by providing access to the technologies that shape our world.
Beyond enabling individual business success, VC can help by encouraging better alignment of values and corporate incentives to amplify the positive social impacts that can flow from entrepreneurial innovations, especially in science, engineering and technology. This can accelerate the rate of progress in some of our most pressing shared challenges.
The UK in particular has a history of promising scientific research that has not been translated into real-world outcomes, largely because early-stage projects were not able to attract serious capital investment. Now, funds such as UK-based Start Codon, which leverages the unique resources of the Cambridge Cluster, focus on supporting disruptive, translational innovations and identify and fund startups. (Start Codon, for example, provides investment and coaching to early-stage healthcare startups and introduces them to commercial partners and leading VCs.)
Can VC help promote ESG goals?
VC has massive potential to help accelerate ESG goals. VCs will not shift overnight from a laser-like focus on financial return to being motivated purely by altruism, but there are clear and compelling market opportunities in this area. The most obvious example is cleantech. This has seen a marked shift in the wider investment market as stakeholders have accepted that embedding climate and governance considerations into evaluations and investment strategies is vital for risk mitigation.
The next generation of unicorns and billion-dollar businesses will come out of sustainability and addressing the big planetary questions. There are also huge opportunities to support the scaling of businesses that can help tackle these global grand challenges. This is particularly the case in developing countries, where the very lack of legacy infrastructure can be a potential strategic advantage in trying to achieve crucial climate outcomes, for example.
Can VC help promote inclusion? How can leaders help?
One thing individual leaders can do is sign up to formal standards of inclusion and ethics. (The Royal Academy of Engineering, for example, is pioneering efforts to bring together the strands of sustainability, inclusion and ethics into the overarching banner of “Progressive leadership”, similar to the way that the ESG goals have been articulated.)
VCs have a key role to play in signalling what they expect an investment-worthy business to look like. This means encouraging the traits that merit investment and embedding a more holistic view into the way companies are evaluated by the investment community.