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What Separates Entrepreneurs And Venture Capitalists

tl;dr: Do entrepreneurs make good VCs? Sometimes, but not always. Here’s why.

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Venture capitalism and entrepreneurship are deeply intertwined. Especially in Silicon Valley, professionals often move between the two careers. Successful entrepreneurs use their industry expertise to invest in other entrepreneurs, and successful VCs start companies to fill holes they see in the market through their wide industry exposure.

But does a good entrepreneur also make a good VC?

Alike

The behavioral profiles for both VCs and entrepreneurs, as discovered by Pymetrics use of neuroscience assessments, are defined by a majority of the same traits: processing speed, risk, planning, and emotion. Considering that we measure ninety traits, it is notable that these two professions are dominated by the same four.

Both professions also have a wider variety of traits (the four listed above) that are critical to the model compared to other careers that are dominated by one or two traits. This means that both entrepreneurs and VCs have extreme results for many traits, which makes sense based on the wide skill set required to succeed in either field.

They also fall on the same side of the spectrum for one of the traits: emotion. Both VCs and entrepreneurs are proficient at reading faces quickly. This intuitively makes sense: successful entrepreneurs are often good at managing their teams, and successful VCs can spot confidence or fear in a founder.

Apart

While they fall on the same side of the spectrum with regards to emotion, VCs and entrepreneurs fall on the opposite sides of their other defining traits: processing speed, risk, and planning.

  • Entrepreneurs tend to have strong planning skills, variable information processing speed, and learn well under high-risk conditions.
  • VCs take time to plan for the correct solution, have consistent information processing speed, and learn well under controlled risk conditions.

This also intuitively makes sense. Entrepreneurs have to plan well in order for their company to survive, process many types of information across different time periods, and entrepreneurs are going for a moonshot with just one company. So learning quickly when the stakes are high is critical.

VCs often have more time to plan and evaluate similar types of information across steady time periods. With regards to their risk profile, contrary to popular perception, VCs are not major risk takers. Instead, they assemble a portfolio of companies that often hedge bets or mirror industry trends. They like to control their risk profile, and VCs learn well under such risk-controlled conditions.

Looking Ahead

So what does this mean for the fluidity of the two careers in Silicon Valley?

Our models show that VCs and entrepreneurs don’t come from the same breed. While the cognitive and personality breakdown doesn’t disprove the possibility of being successful in both careers, it does remind us that they are, in fact, different careers.

There are clearly people who have transitioned between the two careers successfully. For instance, our investors at Khosla Ventures (who previously started Sun Microsystems) or the founder of Blue Apron (who previously was at Bessemer Ventures) have made the transition.

However, such a career move is the exception. Not the norm.

Dr. Frida Polli, PhD, MBA is a Harvard- and MIT-trained award-winning neuroscientist turned CEO and co-founder of pymetrics. You can find her on Twitter here.

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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