This is part of my series on what makes an entrepreneur successful.  I started the series talking about what I consider the most important attribute of an entrepreneur : Tenacity.  I then covered Street Smarts, Ability to Pivot, Resiliency, Inspiration and Perspiration.

You need the whole package

Through comment conversations with many of you I tried to emphasize that it isn’t enough to just have one attribute. Being tenacious without the mental flexibility to pivot based on market feedback is a disaster. Having street smarts with no inspirational ability to build teams can yield a great small business but will be difficult to scale into a large VC-backed business.

So we as VCs search for entrepreneurs/founders who have the whole package or as much of it as possible. Few people have it.

These are often amazingly talented people who are really strong in some of the skill areas and there is no shame in this. They often make great team members such as head of products, CTO, head of sales, CFO, etc. Great companies are comprised of great individual point people or functional leaders.

But when I’m looking to write my check I need to look in the eyes of the captain —the maestro who brings the whole orchestra together.

There are plenty of great leaders who work really hard and work for big companies.  And we’re lucky because they deliver many of the great products, services and content that we consume in our lives every day.  Some of these individuals get the bug to “do something entrepreneurial” but once you’re in the cozy confines of a well paid and well respected job it can be very difficult to take the kind of risk that entrepreneurs will.

7. Appetite for risk

Entrepreneurs are inherently risk takers. Not wild speculators, but pragmatic risk takers who have a blind belief that they will find a way to make things work. If you put on paper what it would take to be successful in your company, you’d never take the first step, which is why most people don’t. It is often called a “leap of faith” because you jump from safety into the abyss with only the blind faith that you’ll find a way.

I know it sounds trite to say that entrepreneurs are risk takers so let me describe the normal, rational person who I meet on a regular basis. I was recently on TWiST with Jason Calacanis. A caller dialed in to ask us questions about his startup. He was from South America but living in Switzerland and had launched a startup while holding down a day job at a consulting firm (McKinsey if memory serves). He wanted to raise angel money. I told him to quit his job first. If he wasn’t prepared to do that he wasn’t a real entrepreneur.

I know that 80+% of the people listening to me must have thought that was the wrong advice. But to me if you’re not willing to quit and take a risk on yourself, then you’re not confident enough in your own idea and skills. Why should I be?If your idea is so amazing that it warrants my hard-earned angel money or the money of my LP investors from our fund then why should I take a risk on you if you won’t take a risk on yourself?

About a year ago I had lunch with a guy who I believe is an amazing entrepreneur. He had built and sold his first company and had good ideas for his second company. He gave me the 50,000 foot idea and he was convinced that this idea would be a monster. The problem was that he was still working out the lock-up period in his big company.

He and his partner told me about this new idea over the course of nearly a year. I finally called bullshit. If this idea was so big then why would they risk not being first to market, not building defensible IP for the sake of a few hundred thousand dollars extra in lock-up money at a big company? I think the mind of an entrepreneur would be far more paranoid about yielding his great next idea than protecting his last 20% payout on the last one. They finally quit. I’m enjoying watching their progress.

I recently read the book eBoys about the founding of Benchmark Capital and the founding of eBay.  In the book they profile how VC worked in the early days (60s / 70s).  Partners in VC funds only wanted to fund entrepreneurs who had a certain percentage of their net worth tied up in their venture.  That’s hard core.  And we all know the fables about how people used to start businesses by taking a second mortgage on their home or by running up credit card debt.

Your financial risks of starting most technology companies these days are so low.  It’s lost salary for a period of time.  Servers, databases, bandwidth – they’re all virtual now.  And cheap.  VCs don’t have the same net worth litmus test and great entrepreneurs have a ton of sources for seed money to get financed very early.

You have kids, a mortgage, MBA debt? Not my problem. If your situation and risk profile doesn’t afford you the ability to be a risk taker I totally understand.  But remember what you learned in your MBA course – less downside / less upside … risk vs. reward.

What about VC’s and Risk?

I run the recruiting process for my VC firm, GRP Partners. About 18 months ago in early 2008 we hired an analyst (pre-MBA), but wanted to wait until after Summer to hire a post-MBA associate. It was May. I received an unsolicited resume from a second-year MBA student at Stanford. He had exactly the skills I was looking for in an associate. I interviewed him on the phone and in person. I introduced him to my partners who liked him.

We weren’t ready to hire an associate yet so I offered him a summer internship. He told me that, as a second-year student, he could only accept a summer internship if I would guarantee him the job in the fall if he performed well. He wanted an assurance that if he performed well, we wouldn’t go through a recruiting process.

I told him I couldn’t guarantee that. If he was confident in his skills he should take the internship. I told him I couldn’t imagine that a guy performing really well on the inside had anything to worry about from a great resume and interview from somebody we didn’t really know. I told him to join and “become part of the furniture.”

Without the guarantee, he turned me down. A few months later he called me back and said he would take the internship. I told him, “Sorry mate, it was a one-time offer. You had the door cracked open and should have taken it.”

Was I too harsh? I don’t think so. I want our associate to have empathy for the customers we serve — our portfolio companies. If the person I hired wasn’t cut from the same cloth as an entrepreneur, then how could I expect him to be able to see inside the mind of entrepreneurs?

I Practice What I Preach

I joined GRP Partners in 2007 before they raised their current fund (we closed a $200 million fund in March 2009). They told me not to join until after the fund-raising was done. I told them it was now or never. “Once you’re done raising a fund you’ll hire anybody you want! I want to join now while there’s risk. I’ll help you raise the fund. And I’ll take the risk. Pay me half salary until the fund is closed. I’ll pay my own moving costs and if we don’t raise the fund you owe me nothing.”

I figured that the alternative was that I start my third company with no salary and all risk. I had nothing to lose!

And that’s exactly how I got into the VC world.  On half salary and my own moving expenses.  I didn’t negotiate hard on carried interest.  I figured I was new to VC and had much to prove.  And I knew that if I performed well I would have leverage to ask for what was fair down the line.  Basically my strategy was to prove myself before asking for equitable compensation.

And so it was.

If I was willing to take risks to get into VC and be confident in my own skills once on the inside, then how could I accept an associate who had no courage?

And more to the point – how can I fund you if you have no real appetite for risk?