Want to be a VC? Work at a Startup. Conversation with Spark VC's Megan Quinn.

As the profile of venture capitalists has risen in our society, more young careerists and students, those in high school and college, have put this profession on their radars, declaring it to be their job of choice, their chosen career.

Most often, however, the best venture capitalists aren’t created in a classroom. They don’t emerge from undergrad or even from MBA programs to head straight into an associate role at a venture capital firm.

As with professionals in all fields, the best venture capitalists are forged through experience, hard work, and the trials that come with building something of consequence over time, with others, and through highs and lows.

Megan Quinn, of Spark Capital, is no exception to this more typical evolution of VC talent.

After Stanford, she started at Google, working on the development and marketing of products such as Google Maps, when the tech giant was still a startup and had an employee headcount under 1,000 employees. She then accepted a position as Square's Director of Product, when the company was just 20 people.

From Square, Megan entered the VC space and became a parter at Kleiner Perkins. Megan still sought to help build something, which brought her, eventually, to Spark Capital. Spark is a VC firm with a portfolio packed with big hits, such as Tumblr, Trello, Twitter, Oculus and Cruise. They reject the typical VC approach – judging companies by a combination of their market, business model, and founding team – in favor of investing in visionary founders and products that inspire.

Full disclosure: Spark is also an investor in FundersClub.

Below, readers will find an edited version of a live conversation between Megan Quinn and FundersClub CEO, Alex Mittal. While this conversation is edited for clarity and, in some cases, brevity, it should be noted that this is live exchange with questions from an international audience arriving in real-time. Many of the questions come directly from viewers. Watch the live event here.

Some of the takeaways from Quinn's conversation with Mittal summarized below:

• Want to know more about how venture deals work? Read Brad Feld’s Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist.
• The bubble of Northern California has embraced venture capital for nearly every kind of business, from coffee roasters to fast casual restaurants, but the reality is that venture capital is not for every business, a lesson that will be learned the hard way for some investors. “It’s a very specific type of funding vehicle for very specific type of company,” Quinn says.
• A lot of savvy venture capitalists are looking beyond California,  beyond New York for new investment opportunities.  There are lots of companies and startups in these places doing the hard work of building a product, building a team, building a company quietly without the hype and inflated perspective that companies often acquire in Silicon Valley
• Venture capital,  at its core,  is about companies that can scale. Quinn’s definition of that: “To be a global company offering products to every person on the planet. Or to revolutionize an existing industry from the outside. Those types of businesses.”
• The best way to get into venture capital? Pretty simple: Go work, hard, at a startup.
• Mentorship needn’t come from somebody you know on a personal basis. Because so many prominent people put their thoughts on display in public now, it’s possible to understand how this person would behave put in your own situation, Quinn says. “If you pay close enough attention to people, and how they act and behave, and write in public, you can actually learn quite a bit,” she adds.
• Every good VC will include these four things in their lineup of requirements, but they will change the order: entrepreneur, product, market, business model.
• The sharing economy works well for cars and houses, but some startups have taken the paradigm too far. We needn’t share our blenders, for instance. Quinn expects this space to cool off.
• The best way to kindle a releationship with a VC for those without connections is to make yourself a known entity in the greater technology discussion. Blog on things you’re interested in, become an expert, go into great depth. Engage VCs on Twitter with smart, informed statements that show your prowess. People take notice, and VCs will come to know who you are.
• The critical mistake that entrepreneurs make, and they make it frequently, is when they come and they say "I really don't want to take very much time doing this fundraising process. I'm hoping to wrap it up in the next 14 days." That sends a signal that entrepreneurs don't really care who the people are who are going to be helping them build this company, who are going to be investing.
• Investors and board members are, effectively, employees that founders can't fire. Entrepreneurs should internalize that.

Mittal’s words  in bold:  

You had almost 10 years of operational experience before moving into venture capital. How was the transition from being an operator of a tech company, to being on the investment side, and what lessons from your operational experience have you been able to bring in to the investing side?

That's a great question. It's one I actually don't get asked as much as you might think. I'm a strong advocate of people who are interested in being investors at some point in their career actually working in the industries within which they want to invest.

In this case, working in startups. Google was, surprisingly, still a startup when I joined. Now I'm aging myself.

 

What year was that?

It was end of 2003, beginning of 2004.

So about six months before the IPO, about 900 people. Square of course was about 20 or so people, so that was another startup.

I think that that operating experience, seeing Google go from 900 to 30,000, something like that, and Square from something like 20 to 450, really gives you an understanding of the challenges that startups face at every step along the way of their journey.

That's been incredibly useful for me on the investing side really because it gives you empathy for the person that's across the table from you. Whether or not you're an investor of theirs or not, being an investor is an incredibly humbling experience. People come in, they tell you their dreams, and they tell you this vision of the world that they believe should exist.

And 99.9% of the time, certainly in my case, unless they're talking about maps, they know a lot more about what they're talking about than I ever will. I'm there to learn and listen and then pass judgment, and because I will never be the subject matter expert in whatever it is that they're focused on, the empathy and experience that I have gained by building and helping mature startups over time is really useful to those entrepreneurs. Or at least, that's the feedback I get.

As somebody who has led product development, and you're talking to founders building product, building technology companies, how do you toe the line between being an adviser and mentor, particularly when you witness something that you feel is maybe the wrong tact?

For instance, perhaps you seen something play out exactly a certain way before, and you know that 10 months down the road X is going to happen. Do you resist the urge to share that, because this time it could be different?

No. I share the information, because I think most entrepreneurs, most good entrepreneurs, want to learn.

They're looking for inputs and feedback everywhere that they can possibly get it. Then in their own head, and in their own company, they're sifting that down to what's actually applicable to their business and their products. I am a relentless advocate for great products. I love product. I test product.

Even on my later stage investments, I test very early pre-launch products all the time to provide feedback. Part of that is just as a normal consumer, someone who enjoys testing a lot of products, I'm happy to do so. Part of that is saying, "Hey, we've tried 32 different variations of this when I was at Square, and this is really what worked, and it seems like it's applicable to your business for this reason."

That kind of feedback is what tends to get the most appreciation from entrepreneurs I talk to.

Certainly I would never go in and say, "This is what you have to do." But what I can say is, "Here's a template for what I've seen, and what's worked. Maybe it'll work in your case and save you some time and energy and effort doing things that won't work."

This question came in from one of our followers on Facebook: What level of financial literacy do you expect of your founders? Is a good handle on the financial books enough, or do you prefer them to understand things like CAP tables, percentage distributions, etc.?

I mean, to be clear the startups I'm looking at are not non-profits. They are businesses. If it's not a business today, it's intended to become a business over time. So, yes, founders should have a basic level of financial literacy in order to run their startup.

The good news is that there's a proliferation of VCs, like myself, who share a ton of content online, every day, all the time, more than anyone could ever possible want to read, about the fundamentals of startup businesses.

What I definitely tell people who are new to entrepreneurship, or new to investing, is go read Venture Deals by Brad Feld.

I actually don't know Brad, but the reason I recommend it to people is because it's about 200 pages, and it just goes through what are the very basic fundamentals you need to understand, about running, or investing in a startup.

As a growth stage investor, would you be still interested in funding a business that is net losing money, doesn't have a monetization model in place now, but has a plan to monetize in the future?

I am a delighted investor in a couple of companies, not a majority of my portfolio, but a couple of excellent companies that target really hard problems for enormous user bases and have seen incredible growth, that are pre-revenue or nearly pre-revenue, but do have very distinct paths to generate revenue.

Monetization plans that they'vethought about, and that we have actually had conversations about, and putting them into practice it just a matter of implementing or growing the team.

This question is another question from the audience: Is it rare for a tech startup to make it big without VC funding?

This is such an interesting question because we exist here in San Francisco, which is something of a bubble. If you want to start a company, you go out and get VC funding, and it doesn't matter whether you're starting a women's intimates company or a food company.

Venture capital is for everyone – that's the mentality we have here. But in fact, that's actually not the reality. Venture capital is a very specific type of funding vehicle for a very specific type of company. It is not broadly applicable, and there is no reason to have shame or to be disappointed if venture capital is not the right funding vehicle for you.

The United States is built on small businesses that do not take venture capital. So is it rare for a technology company? I would say no, from the macro perspective. Certainly from the Silicon Valley perspective, however, it would be rare.

As a result of all of the very expensive companies, and high valuations that have popped up in the Valley in the last couple of years, a lot of my colleagues are actually going out and looking into places in Middle America – an area we wouldn't immediately pef as a first tier hub, to find more of these companies that have been doing the hard work of building a product, building a team, and building a company quietly, without the inflated aspects of Silicon Valley.

A follow up question: What type of company is a great fit for VC, then?

It's really about the ability to scale, right? Venture capital dollars should enable a certain amount of technical innovation to then scale extremely quickly. I think that we have expanded the reach of what types of companies venture capital has traditionally funds in recent times, but it's fundamentally around the potential for scale.

Some people in our audience might not know what you mean by super scale. What would be a benchmark commonly used to define "super scale"?

To be a global company offering products to every person on the planet. Or to revolutionize an existing industry from the outside. Those types of businesses.

Another audience question: For a college student interested in interning at a VC firms, or working at one in the future: Any advice on what steps to take, and what experience he or she should have already acquired?

I have strong views on this. I'm amazed that there's anyone who wakes up as a high school student, a college student, and gets out of bed, and says "Man, I just want to be a VC!". The thought never occurred to me.

I think the absolute best way to get into venture capital is to go work at a startup. It doesn't matter if you're working on a five person or 20 person team, but let's say not 500 people. Go work at a true startup where you can have an outside opportunity to have an impact. Work extremely hard, and excel.

If you're doing great work and building your operational chops, you will meet the investors of that startup, and you will meet other investors as a result of that, and you'll build a strong network within the startup community. Then maybe you can move over to the investing side.

That's my bias. There are many people who have taken different routes to get here. My husband was a journalist. He is now an investor. There is another famous journalist at Sequoia Capital who's now an investor. There's not one route, but my bias is to actually go in, get your hands dirty, and learn what it's like to actually build a company.

You've written about learning by observing. Who are your mentors in VC, and who are the people you followed, observed, and learned from when you started out in venture capital?

That's a great question. So this is one of the few things I've written about, I'm not a prolific blogger. I do have this belief that mentorship is extremely important, but mentorship does not mean someone that you meet up for coffee with every other week, necessarily.

It's definitely good to have people who are specifically focused on you, and invested in on your success, and who will spend that sort of time. But if you pay close enough attention to people, and how they act and behave, and write in public, you can actually learn quite a bit. That's what I talk about when I say learning by observing.

Does that mean you could have a mentor figure that you've never met?

Potentially, that's right. It depends of course on how transparent they are, but a lot of people, frankly too many people in our industry, are very prolific online in terms of the content that they create and share, whether it's on Medium, or Facebook, or Twitter, or wherever. I've given some examples of this.

On the operating side, it's not a perfect example, but Marissa Mayer is a friend of mine, and someone I've worked for a long time, but as CEO of Yahoo, she's very busy. I don't ask her for coffee every week and see what she's up to and get her feedback on my latest life decision. But I know enough about how she thinks and how she writes and what she shares to be able to learn from her experiences.

That same thing is exactly true on the venture capital side. The good news about VC, at least from my experience coming in to VC, is that the community itself is extremely welcoming. Someone, a general partner from almost every fund that you would think of on Sand Hill Road, reached out and wanted to meet up immediately when I crossed from the operating side to the investing side, and were really willing to share the lessons that they had learned and the things that they thought I should be thinking about and doing right away.

I continued to develop those relationships. There are some people, whether it's Bill Gurley or Marc Andreessen, who I don't call up every week and ask "What do you think about this deal I'm looking at? Here's how I'm thinking about it." But they're actually very prolific in their writing, they're very thoughtful about it. I can learn from the experiences that they've had over 20, 30, 40 years in the industry.

From the audience: Please provide your top three criteria for making an investment decision, positive and negative." 

Every investor will include these four things in their line up of requirements, but they will change the order. For me it's product, entrepreneur, market, business model.

In that order?

Vaguely, yes. If they're not all stellar it's not a good fit for me, so they have to all hit a high bar. As a product person by background, that's what I'm first initially attracted to. Obviously the person – there's got to be some sort of charisma and relationship there, and then I look at the size of the market they're targeting, and the business model.

Another audience question: "What do you think of startups in the sharing economy space?"

I actually don't love the sharing economy space, necessarily. I'm very selfish, I don't share very much. I'm an investor in Uber, and an extremely happy one. I think that they've completely revolutionized transportation, will continue to do so globally. My husband and I both sold our cars.

I'm from Los Angeles. Selling my car was like selling a child. I was born and raised thinking that the car was your home, and you were entitled to it on the 101. We both sold our cars two years ago and are all in on Uber and public transportation, and good old fashioned walking, and it's completely changed our life and our economics.

We actually did the math, and this is one of my other posts that I put on Medium, about doing the math for our household between owning two cars in San Francisco, and depending entirely on Uber transportation, public transportation, and walking. It just made sense for us, though it may not necessarily work for everybody – but it's math worth doing.

I'm obviously a big fan in that regard of the sharing economy. There have been a lot of companies that have popped up in the micro sharing space. I think that the sharing economy is great, but up to a point. In terms of sharing my blender – well, you don't really use your blender every day, so maybe your community can share a blender, but I'm not enough of a hippie for that. I'm certainly a big fan and a repeat Airbnb user. I think that maybe we've extended that framework as a business model a little bit too far.

From the audience: We always hear that the best way to get a VC's attention is through a 'warm intro'. What if you don't have a large personal network yourself? What's the best way to get in front of a VC who you may not actually be able to get an intro to directly from your existing network?

I actually think it's never been a better time for someone who doesn't necessarily have a public presence to meet people who are influential in Silicon Valley. All you have to do is communicate.

This dovetails well into what we were just talking about. Many VCs tend to be very active and engaged on public forums like Medium and Twitter. Newcomers to the tech space should develop subject matter expertise in something and share their thoughts on those platforms as well. Have a strong opinion, back it up with fact, write about it, share that opinion, and people will engage with you.

It's just the nature of Twitter. I think that's really the best way to engage with VCs, if you don't necessarily have a large network.

So, make it apparent that you are an expert in something, or have a strong point of view in something, and then write about it?

Yeah. I mean what I said at the very beginning, which is, I'm sitting across from founders every day who know 99.9% more about whatever it is that they're focused on than I do. Share that knowledge, share that learning, share that enthusiasm and passion, and do so broadly, and then engage with people around what it is that you know, and you will become a magnet to people.

That's really good advice. Another audience query: So you were at Kleiner for a few years, now you're at Spark Capital. How have you evolved in your career as a VC and, how is what you're doing now different from what you were doing before?

I get asked this question a lot. It's a good question. So about moving from Kleiner to Spark: Kleiner's an amazing place. I don't think in Silicon Valley there is a better place to learn the fundamentals of venture capital than Kleiner. It has 46 years of history, they have seen every machination of deal, the founding of huge companies, and every challenge they come across, all under one roof. It is an amazing place to learn, especially when you're going from the operating side to a whole new world of investing. You're learning from the best.

On leaving Kleiner: I was looking for the opportunity to be a part of something that was building. Kleiner already has an amazing reputation, but, frankly, I can't take any credit for helping to build it. Part of the opportunity at Spark was to say "Look, we have 10 years of history as a great venture firm." They started out in Boston, they're certainly beloved by both entrepreneurs and other investors, but Spark was getting into the growth practice for the very first time when I came on board. This was a new competency for the firm, and it was something they hadn't done before. We had to both prove ourselves as growth stage investors, and frankly prove ourselves as San Francisco-based investors. The office here is only a year old. I really wanted to go to join a firm where I could be a part of that building process. It's been a great fit.

For those not super familiar with Spark – they have backed Twitter and Oculus. To think that they still had something to prove, even with those successes under their belt, is fascinating.

We have a lot of work to do. We have a lot of work to do to continue to build up our reputation, continue to meet more entrepreneurs and, like I said, to develop this growth practice, which is relatively new for us.

Another audience question: "What is Spark's take on a startup's use of near shore tech dev teams to help startups with their product pushes, and is there a downside from a VC standpoint?"

VC standpoint versus product person standpoint, which is the constant internal thought battle I have. From a VC standpoint, we see a number of great companies that have some portion of their technical teams outside the United States. It's attractive, in many ways. Of course, there's great technical talent outside the U.S. 

It's less expensive, there's not as much competition around talent. Getting a product and a business and a company up and going with some external technical talent isn't an immediately negative sign from a venture capital perspective at all.

From a product perspective, which is where I'm going to shift a little bit, it's very tough for me to imagine what that would be like. I think it's not necessarily a bad thing, it's just yet another challenge for startups that are already facing so many challenges.

I know based on the dynamics of engineers, designers, and product people working together that, actually, proximity is pretty crucial to a lot of the development. It's not necessarily bad, but you're just throwing in yet another hurdle into the building process.

So I'm hearing a strong preference for in house products.

That's personal. That's personal to me and not necessarily true of VC across the board.

Another audience question: Would you consider it a negative if a startup received funding from an online source of capital at the seed stage?

My general feedback is no. I wouldn't consider it a negative if a startup received crowdsourced funding at all. Certainly that's true even more so in the growth stage, because if you've received crowdsource funding, you've made it to where we're focused on if the company is doing tremendously well.

Another audience question: Spark is one of the best VCs, but how should founders vet VCs so they can get helpful advice and good energy, while with knowing that the investors will largely stay of their way?

It goes both ways. We're interviewing too. Every conversation I have with an entrepreneur is an interview on my part as much as it is on their part.

I think actually the most critical mistake that entrepreneurs make – and they make it frequently – is when they come and they say "I really don't want to take very much time doing this fundraising process. I'm hoping to wrap it up in the next 14 days." In my head, all I can think of is, "Man, you've gotten into the wrong business." Fundraising is fundamental to this business. If you want it to be some fast process, then that says to me you don't really care who the people are who are going to invest in your business and help you build this company.

I learned a lesson very early on before I was even thinking of becoming an investor: Investors and board members are employees that you can't fire.

You really need to internalize that as an entrepreneur. When you say "No, I just want to wrap this up in the next 14 days." It says to me you're not really thinking about your investors that way, and the way that you should be. So my response to that in terms of how you should vet VCs, is really to spend your time getting to know them.

What are one or two parameters of evaluation when you're spending time with that VC to look out for as a founder?

I think the first thing to look out for is establishing a personal connection. Going back to employees you can't fire, your investors, whether or not they are on your board or on the cap table, are going to be there for the duration of your business. Pick someone you are going to want to bring along for the whole journey. I think that's extremely important.

The second piece of that is really just competence. Ask yourself: if they don't have domain expertise, do they have broader platform expertise that can be applicable to my business and helpful to my company?