#AskGGV: Making mistakes, learning from failure to become a successful venture capitalist

The original question was: As a young investor, I often make mistakes and I try to struggle through and learn from them. I will be grateful to hear from your experience in dealing with failed investments or lessons that has shaped you to become a successful venture capitalist. How did you get through the failure? Here's my answer to him.

The venture capitalist business by nature, is a low probability business. It’s like baseball. In fact, there’s an analogy to be found here. There’s a slugging percentage concept in baseball, which means that each home run counts more. And each Grand Slam that brings four runs to the home base, counts even more. That’s how you know you can make it as a venture capitalist – if you have enough unicorns that deliver high-impact outcomes.

I think every VC needs or will make mistakes in order to get to those unicorns. It’s very difficult for anyone to just walk in, start picking and immediately do well. This is such a hard business and the start-up business is very hard to begin with. The chance of success as a founder is less than 2%. So, in this kind of business where the probability of success is 2%, and you want to have a 30% success rate – the odds are stacked against you.

In that situation, figuring out how to be helpful to people and to learn from your mistakes will have great importance.

Some of my early investments – I’m not going to name any names! – witnessed common issues. For example, founders who did not get along well, or the level of competition in the market was fiercer than originally anticipated and the founders were not able to pivot quickly. As a VC in those situations, you try to help founders make better decisions – try to help them to recruit, or find customers, partners, or buyers. Along the way, as you spend more time helping the founders, you quickly learn what to do or what not to do.

One thing I will suggest for young VCs – don’t invest too much money into any company. You will be much better off learning from other people’s mistakes.

- Hans Tung, Managing Partner, GGV Capital

One thing I will suggest for young VCs – don’t invest too much money into any company. You will be much better off learning from other people’s mistakes. Spend more time with the companies you invest in, to actually help them to succeed. In essence, you’re using other people’s money to learn, but at a lower opportunity cost. If it doesn’t work out, the loss to the firm or to the partnership won’t be too great, but you’ll learn a lot in the process. For me, my learning process was at Bessemer Venture Partners and Qiming Ventures (before joining GGVC), learning from my fair share of mistakes there. And making sure that the ones we do put money in, end up actually making money. That’s how I survived.

There are many VCs in the business who do not have the right mentoring early on, and they end up over-committing to a new market or a new area too soon, and they fail to recover from their mistakes. Learning how to survive on the battlefield is truly half the battle won.

This answer first appeared on an Ask Me Anything session (AMA) with Hans Tung. Do you have a burning question of your own? Submit yours here.

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