When I meet startups, I mentally run their product or service through this test, which is the test of frequency of product usage by their customers. Simply put, if the frequency is high, then their product idea stands a greater chance of surviving in the marketplace. If the frequency is low, then the probability of dying is much much higher.

What do I mean by frequency of product usage?

When a user uses a product tens or hundreds of times a day, this is the dream – to work on a product that is so necessary by a large customer base that they need to use it that much! An example of this would be email – too bad it was created and set free to the world because someone could have made a lot of money on that, or at least in the early days.

Once a day is not bad either. Once every few days still OK. I read the New York Times email digest and website once a day generally, so I can remember to go there. What about the other news sites? Hard for me to remember which ones I do read when I visit them so infrequently.

Once a week – hmmm – getting to that limit. Once every 2 or more weeks and I think you’re in trouble.

That’s because people forget very easily what services and products they use, especially in this crowded world of me-too products. When your memory is sketchy, it’s easy for someone else to hop in there and supplant you.

Take travel services for example. How often do people really go on vacation? Normals tend to go maybe once a year, if that. If I find your site, use it to plan a vacation, and don’t worry about going on vacation until next year, do you think I would remember to come back to you? If you’re a startup, the odds are against you that you’ll even be alive by then.

This goes for both consumers or enterprise customers – if a business customer doesn’t find a daily or constant use for your product, then how can it find some justification for buying your service?

That doesn’t mean that what you’re working on shouldn’t exist, or couldn’t become a big business. The big problem is that you’re a startup with limited resources and survivability and some lower frequency services should really be done by more established companies. You, on the other hand, need traction and revenue as fast as possible before you run out of money. This is why frequency of usage is critical at early stage; if you have a product that people only occasionally want or want at special situations, you’ll never be able to build enough customers before you die.

So you have three choices. Either you must work on something that has a high frequency of usage, enough to attract users who find you useful enough to use often enough to keep coming back; OR you must find a way to buckle down and exist long enough for enough customers to sign up and generate enough traction and revenue for you to survive as a company. There is one other possibility and that is to add some high frequency elements to your low frequency of usage service to keep interest in and around your main service, despite the fact they may actually use the main service only intermittently.

Any of these could work and convince me to invest but working only on a low frequency of usage service in today’s super crowded marketplace definitely will not.

I thought back over the last year about the many other board meetings I’ve attended. I thought about why some of them took much longer than 1.5 hours and seemed to drag on and on. One thing I could think of that did stand out was the presentation of product screen shots and the subsequent discussion about the product.

Now I’m not against all discussion of products in the board meeting. You should present the product development pipeline over the next few months or quarters. You can give an overview of the important major products, features, and services you’ll be launching (or killing). You can talk about holes in your offering and what competitors are doing that you are not and to have board level approval of a given direction.

But almost always, what derails a board meeting for some lengthy period of time has been the presentation of a product, some deeper dive into features, and the dreaded product screen shots throughout.

When this happens, then the comments come out. And ideas. Lots of them. Innovative ones, some good, some terrible. Everyone wants to chime in and make the product better. They start commenting on the design – the colors, the interface, the copy – everything.

Why not? It’s up there on the wall projected for all to see.

Is this bad?

At a high level, no. We should have these discussions about the product. They should involve all the important people they should.

But I would argue that this should not happen at a board meeting.

Board meetings are time to touch on all the major strategic, high level initiatives of the company. It provides oversight and governance, and drives the strategic direction of the company. You get a lot of experienced people in the room who have run companies before and they tell you where you are doing well, where you are doing better, and where you are heading towards danger.

And you take care of board level business like approving acquisitions, key hires, option grants, etc.

I just don’t think a board meeting is where you’d want to also have a big product discussion.

Then everyone jumps into the fray, and these discussions go every which way. The discussion is good, but the clock is ticking. All the while I’m glancing at my watch wondering when we’re going to get back to the main agenda since we’re off on a tangent now and have no idea when we’re getting back on track.

Eventually we do, but now a 1.5 hour board meeting has turned into a 3 hour affair. I look back and always note that if we didn’t have that product deep dive and discussion, this meeting would have been less than 2 hours.

There is a time and place for product reviews and discussions. Let’s schedule a separate meeting to do a focused presentation on it. We can ask for specific feedback, ask people to try it out, present research and findings on why we’re doing things a certain way or not.

Board meetings just aren’t the time to do this. Every time, inevitably the board meeting drifts and valuable time is used up when it shouldn’t be. So please, let’s just let board meetings be board meetings, and if you want to have a great product review, let’s set up a separate meeting for that where we can be prepared and have a great focused discussion on it, and not waste valuble board meeting time with it.

- How to Develop Your Fund Raising Strategy by Mark Suster

Every year, I meet entrepreneurs who say they hate fund raising. They don’t want to do it, they want to get it over with, they wish they could go back and build their business, doing the coding/designing/etc.

I hate it when they say that.

Fund raising is a necessary evil. YOU MUST DO IT. Without it, your company can’t survive. You need the money to get to the next level.

But I hear that nobody wants to do it.

Yes it sucks. Begging for money sucks. From the first time you begged your mom for money to buy that comic book to now when your begging investors for money, it still sucks.

I’m sorry but I’m tired of hearing it. As Mark Suster says in that quote from his latest blog post, it is something every founder needs to do and do well. If you aren’t good at it, then there is no better time to start learning how to do it then when you’re raising money for your startup.

It never stops. It seems like it does, but as Mark points out, it really never stops. As a founder, you are always out there selling yourself and your company. You need to start building these relationships early, as soon as possible after raising your first round. Big money is best gotten through familiarity over time, not social proof, not a quick glance at a deck, not an emotional reaction to the coolness of your screen shots. So you better get good at selling yourself so that you can get needed money later when you need it.

Raising money is a rite of passage to being a real entrepreneur. Yes it’s uncomfortable. Yes it seems like it wastes your time. But it IS a big part of building any business.

So get over it. Get comfortable with it. Use this time to figure out how to sell your startup and get people to invest in you and your venture. Go out and raise your round whether it takes 1 week or 12 months and stop complaining about how much it sucks. The future is filled with things you’ll have to do for your startup that suck – you need to get used to doing things that you don’t like and get good at all of them if you’re going to excel as an entrepreneur.

In fundraising, I believe that the most important thing that you can do to dramatically increase your chances of success is to better connect with the individual partner that you’re working with at a given firm.  By figuring out what makes this person tick, you can turn them from a passive decision maker into a champion of your company.  This seemingly small nuance will give you an infinitely higher chance of having his/her firm making an investment in your company.  While this sounds really logical, it is amazing to me how many entrepreneurs send over data, decks and emails, without any thought of what it will take to actually woo a partner (and I don’t mean faking it – this needs process needs to be completely genuine).  By turning a partner into a champion, many good things will begin to happen.  They’ll bring you up in partner meetings, make sure that the process runs smoothly with their analysts and associates, introduce you to people who can help you grow your business or solve a specific problem.  And, when the ultimate decision time comes, they will be in your corner fighting for you with their partners.

Unfortunately, figuring out how to romance a partner is next to impossible because we are all human (well, some are robots…) and the key to unlocking the vault is ever-changing

So, with that said, here are the things I think about and look when looking at a potential investment.  As I said, all of the market disruption, size, and competition stuff is table-stakes, so this is the peel-the-onion, next order of thinking.

Where did you come from?

Generally you get through the “door” when you come from someone whom I like and trust.  There are a number of sources that get preferential treatment and immediate consideration to take something that they recommend into deep diligence.  Get through their door and that is a big boost of confidence for me.  As with most other firms, the social filter is a great way to look at a lot of high quality pre-screened companies.

Besides the traditional need to be referred from someone whom I trust, I also care a great deal about your background and what makes you tick.  A lot of the time, knowing what you value as a person is as important to me as the company that you are working on.  If your world-view aligns with mine then I have confidence that you will be making decisions that align with those that I believe will make you successful.

Why are you spending your time on this?

I always try to separate the “get rich quick” guys from those who are truly passionate about what they are working on.  I can’t stand the get rich quick schemers.  I like to think of myself as a pretty patient investor.  I like the guy who is thinking about what the company will look like when they’re 80 years old and their wife is telling them it’s time to retire, but they don’t want to hand their creation off to some hot shot, young Harvard MBA who knows nothing about electrophysiology.

How much have you risked on this venture?

You don’t need to mortgage your house, borrow against your sister’s 401(k) and trade in your ’99 Toyota to prove that you have risked a lot on your new venture.  There are small sacrifices that can have bigger impacts than just plowing money into a start-up.  For example, the founders of PaperG, who are first generation Americans, proved their commitment to me when they explained the personal sacrifice they faced when dropping out of Yale.  Those guys were facing parents who would, literally, never talk to them again if they didn’t complete their Yale educations.  Of course, I am not in this to break up families, so the entire investor group, along with the founders, figured out a creative way to help them finish up school while running PaperG.  They were on the 5+ year plan but who’s counting?

Do I look forward to diligence meetings with you?

No explanation here.  Am I thinking about your company before bed and excited to share ideas with you at meetings – or am I just going through the motions?

Do I open emails from you immediately (may not respond immediately)?

This is one of the biggest indicators for me as to how interested I am in your company.  I, generally receive 150+ emails per day.  If a company is hot on my radar screen, I like the founding team and love the product, I find myself itching to correspond.  As many of the CEOs who I interact with on a regular basis will tell you, when I find something that I believe in, I am naturally trying to spend more and more time working with them.

Am I excited to share this deal with my friends in the investment community?

Assuming that I am going to participate or lead a syndicate (90%+ of Launch’s deals are syndicated), then I am going to need to introduce you around.  As I am doing this, it is important to note, how quickly I send these referrals out.  Similarly, if I am not the one qualified within Launch to look at this company, how fast am I moving you through our organization?

Are you doing something that will help mankind?

In general, I like to think that I spend my time helping people build companies that will leave this world in better shape then when we started.  It doesn’t mean that I am interested in investing in the double bottom line.  There are great firms that focus on this as a strategy; we are not one of them. What it dos mean is that I would prefer to spend my time getting excited about a company that will transform an industry, positively change people’s lifestyles, contribute something substantial to science, the arts, humanities, etc. etc.  I am more interested in creating and disrupting markets rather then building on top of them.  Again, this doesn’t mean that LaunchCapital only invests in start-ups like this, but it is probably what I am spending my time on.

For reference, here are the companies within Launch that I am responsible for, or that I had significant input into the diligence process and the year of investment:

Apparel Media Group – 2011

Carsala (shutdown) – 2008

CustomMade (along with Bill McCullen) – 2011

Continuity Engine (along with K. Drakonakis) – 2009/2010

DoubleDutch – 2010/2011

Green Life Guides – 2009/2010

HoDo Soy – 2008

Kibits (along with Tom Egan) – 2011

Lefora (sold to CRWG) – 2008

Life360 – 2009/2010/2011

Liquor.com – 2010/2011

LP33 – 2010

Mobile Spinach – 2010/2011

Momelan (along with Bill McCullen) – 2010/2011

PaperG – 2008/2009/2011

ProFounder – 2010

ReportGrid (along with Tom Egan) – 2011

RentJuice – 2010

SecretBuilders (along with Bill McCullen) – 2009

SocialSci (along with Bill McCullen) – 2010

STR (along with K. Drakonakis) – 2010/2011

YouRenew (along with K. Drakonakis) – 2010/2011

zozi – 2010/2011/2012

With that said, there is really only one key question that I would want to know if I was going to war with someone – and a variant of the question that most entrepreneurs fail to ask when evaluating their potential seed investors:

“If the s*&# hits the fan, will you have my back?”

In my opinion, this is the most important question that an early stage entrepreneur can ask because the answer will expose a lot about the character of a seed investor, their mentality when making the investment and the importance that they place on you as a business colleague.  Most entrepreneurs steer away from asking such a bold and blunt question as they fear that it could expose a weakness in them as leaders (“if I am thinking about the downside, then I will expose my fear of failure”).  While, I wouldn’t recommend that you ask this at a pitch meeting, but definitely would want to know as diligence progresses.

Here are some red flag answers that I would look out for:

A: All of our portfolio companies have been extremely successful.

If anyone who has made more than 3 investments in their life says this, then I would assume that they are not telling the truth.  Even the most successful of companies have faced critical pathways that determine their long-term outcomes.

A: We do not reserve follow-on capital.

Many seed investors today do not have a follow-on strategy.  I believe that on a case by case basis, there are reasons that a follow-on makes sense and times when it doesn’t. The real question that needs to be answered is “do you have any dry powder for me at all?” For example, what if we need a bridge financing round.  What other angels or investors can you help to close the gap?  Do you know any acquirers in our space that can step up to the table?  What if my metrics are trending in the right direction, but aren’t enough to substantiate a new round?

A: We like to get involved really early and then hand the reigns over to you to grow.

Again, this sounds great when you have rose-colored glasses and the prospects of success are the only things in front of you.  But, what if things go sideways?  Finding investors who will roll up their sleeves, lose sleep with you when challenges emerge, dial for dollars at critical junctures, think through pivots, and practice your pitch/edit your investor presentation are all very important tasks that you will want your seed investors to help out with.  In fact, your job as the CEO of an early start-up is to employ everyone in your eco-system to help get you from point A to point B.

A: We have resources to help support you and your team.

The answer is way too vague as “resources” mean a lot of different things to a lot of different people.  If your resources are simply to hit the “recommend” button on AngelList, then you aren’t really helping.  If your resources are to introduce me to a part-time CFO that will cost me an additional $10k/month in burn this won’t get me out of a short-term cash jam.  If they claim a roster of venture firms with whom they have worked with over a career, then find out how they would present your team/opportunity.  However, if your seed investor has analysts (or a wife/son/dog) that can be leveraged for quick projects, an open CRM system that I can dig through for new contacts or a bench of entrepreneurs who I can leverage for critical questions/answers then, maybe, you have a good investor.

A: We will roll up our sleeves and really help (or we socialize the problem with our team internally and come up with a solution).

Again, this is way too vague of an answer.  Ask them for specific examples.  If your investor has not been on the phone at 10pm with a portfolio company in distress or a founder who is feeling the heat and needs to vent, then they are not hands on enough for me.  Similarly, an investor should be prepared to put it all out on the line for you if they truly believe that you are building something incredible.

A seed investor should be an extension of your team, a member of your battalion.  He/she should be prepared for the realities of war – the blood, sweat, tears, and yes, at times, the romance of it all.

It was when I first heard someone (my graphic arts professor Matt Kahn) say that designers need to travel more in order to broaden their horizons and in increasing their worldliness and knowledge, they could create better designs and become better designers.

Back then, I wasn’t very worldly. I didn’t care much for traveling or seeing other places. I was from Poughkeepsie, NY and led a pretty sheltered, enclosed life. I hadn’t traveled much as a kid and didn’t really understand why I might want to travel other than to hang out on a beach. Besides, it cost money which I didn’t have at the time.

Time went on, and I got the opportunity to travel more, and slowly but surely seeing other cultures and meeting the people in their broadened my perspective greatly as it related to design. Somehow the expansion of consciousness made me more effective as a designer.

After that, I sought to learn about as much about the world as possible in all aspects. I read everything. I devoured books and magazines on not only design but technology as well. Later, I expanded this to all sorts of topics, ranging from news to economics to everything. I knew enough about a lot of things to be dangerous but it was extremely effective for making me a better designer (and also helped me to be a better conversationalist!).

Which brings me back to science fiction.

Before my consciousness expanding realization, I have always read a lot. But that was limited to almost exclusively science fiction. But now my science fiction reading had another benefit.

As Cory Doctorow wrote in his post, A Vocabulary for Speaking about the Future, science fiction authors are great at painting pictures of the future. Perhaps they are terrible at predicting what the future really might bring; still, they are great at showing us what the future could potentially hold and thus can be extremely useful in expanding our consciousness for creativity in design…or in venture capital.

VCs need to have some intuition about how the world will be in the future as they are betting on things now that will hopefully be big later. In order to do that, you have to be creative and imaginative; you can’t analyze what the future brings – look at how Wall Street experts did back in 2010 predicting what would happen in 2011. You can only imagine what the world will be like and then make your bet.

To beef up your intuition, you need to expand your consciousness through travel and experiencing other peoples and cultures and expand your knowledge base to cut across as many disciplines as you can handle. In doing so, you will release all the negativity that only comes with analysis of the future which is unknown and can’t really be analyzed. And what better way to increase your creativity of vision of the future than to have people lay it out for you in the form of novels and short stories?

My issue with the proliferation of startups boils down to 2 problems in dire need of solutions. Here they are:

Entrepreneurs are to the rest of the workforce, as Navy Seals are to the rest of the sailors in the Navy

In meeting with many entrepreneurs, I find that many lack a lot of the crucial characteristics of really making it as an entrepeneur. Everybody wants the good outcomes, but they are unwilling or lack the ability to gut through the bad parts. They lack the essential personality traits, like adaptability, able to deal with chaos, a never quit attitude, the ability to keep going no matter what even if it means their lifestyle is threatened. Or they have some notion of what it takes to build a company from scratch – maybe they took a seminar or read some books – but they did not actually take the time to work in a startup or build a business from scratch with someone more experienced to see what it is like and learn (by the way, one of those things they may learn is that they are not cut out to be entrepreneurs!). They all want to be entrepreneurs, but for some reason do not have the right characteristics or training.

This where I liken entrepreneurs to Navy Seals. We’ve probably all read about the crazy training that Navy Seals go through. According to Wikipedia’s Navy Seal page, the drop out rate is over 90%. And that’s after being selected from the normal soldier ranks for having the *potential* for becoming a Navy Seal. Not everyone can become a Navy Seal and their training is designed to weed out those who lack the essential traits that every Navy Seal must exhibit or else they put their mission and their lives in danger.

Entrepreneurs experience of their job is exponentially more intense than that of someone who has a normal day to day job. Like Navy Seals, not everyone is cut out to be an entrepeneur. But yet we set 1000s of people each year off thinking that they can become entrepreneurs.

We desperately need some better training systems and systems to help people determine whether they have the right personality make-up to be great entrepreneurs. What we have today is not enough. Book learning at college is not enough, and neither is a day long seminar.

Perhaps there are those of us who would say that setting them off into the real world building companies is the right way to go. Yes that may be true, but I would love to find a way to do it that does not require investors to put up their hard earned capital just so people can learn how to do it better, or learn that they weren’t cut out to be entrepreneurs in the first place.

We desperately need a way to fund startups that become small to medium sized businesses

Suppose you find a way to become a Navy Seal like entrepeneur or something close, and you work on an idea that seemed awesome at the start, but resulted in something less so. Instead of generating 10os of millions of dollars a year, it only generates a few 100K/year, or maybe millions.

At that level of progress and revenue, the company is doing great. It is generating money, paying real people to work for them so that they can support their families, and outputting useful products and services to others who need them.

For the record, I LOVE THIS. Our economy is in shambles and we need more businesses that simply employ more people. If you walk down the streets of Palo Alto, you see so many small shops that are now closed; so many For Lease signs even in a place like Palo Alto. Our country needs to fix this. The banks aren’t helping and new business creation requires other avenues for funding.

These companies don’t need to IPO, they don’t need to be acquired. They have great reasons to exist in their current state forever and generate enough money to support all their workers and the products and services they provide.

The problem is that we are funding startups like they all are going to IPO or get acquired for tons of money. We are not accounting for the case where the business levels out at a much lower place where IPO is not possible, and the likelihood of M&A is also very low. If a startup reaches a much lower place, we investors’ money is essentially trapped within the company; the company has no real way of repaying the investors unless they are making a lot of cash.

We often meet startups which are really cool and interesting, but when we look at the team, product, vision, and the macro factors, we sometimes can tell pretty early that this company is heading towards small business status. Sometimes the startup is cool enough for us to really want to put money in but cannot simply because we do not know how to get our money back, or make money when the deal is structured like a traditional startup financing and we are trying to make money from equity ownership. So if something smells like it won’t get big, often we won’t invest simply because of that.

Having said that, and despite the fact that we investors think we know everything (HA!), we really sometimes don’t know if a startup will end up as a small business or grow to IPO or M&A greatness. But I would argue that the immense proliferation of startups makes it highly unlikely probability wise that someone you meet will get huge; on the other hand, the probability that they will make it to some smaller state of revenue generation is much much higher.

Thus, it is my belief that our ecosystem desperately needs some way of financing startups that takes into account success at IPO/M&A greatness or success as a sustainable, smaller, revenue generating business. If we have this, then we should be more comfortable investing in more startups since we have greater comfort that we can get our money back or even make some money on our investment, versus seeing it essentially static within a company where we can never extract it.

Today, we see the transcendance of Apple and the amazing things that Steve Jobs has done for the worlds of computing and mobile. He took two very slow innovating, mediocre to bad UX, nearly commoditized industries and transformed them into new engines of growth for creativity, innovation, and monetization. His rabid focus on what’s crappy for users before and creating the ultimate solution has served him and Apple well. Thus, I think for those of us in this generation, we like to ask, “what would Steve Jobs do?”

What would Steve Jobs do?

Jobs is not with us any more, but his methods are well discussed and documented. To oversimplify dramatically, he simply takes something that exists today, looks at what is frustrating and crappy about it, and makes it into the ultimate whatever from a user experience standpoint AND makes it delightful and desirable on top of that.

This is now my new favorite thing to ask startups that pitch me.

Are you creating the Apple of [fill in the blank]?

I think this is worthwhile to apply to anything that a startup works on. Startups are the perfect place to envision, create, and execute the ultimate product or solution to anything. Big organizations have so many barriers to doing that; being small and nimble gives you a lot of advantages.

In today’s startup ecosystem, I am beginning to think that now you have no choice but to create the Apple of [fill in the blank]. Why? It’s because there is SO much competition that being great isn’t good enough. You have to do better than even that to get noticed by consumers who are getting way too many things that are great and to rise above the noise of all the crap that is preventing us from discovering the right thing. If you want to win, the bar has risen so frickin’ high that you have no choice but to pull off the hardest feat possible, which is to build something that eliminates all frustration and crap in the user experience and is the ultimate solution for that product or service and, oh by the way, it needs to be something so desirable that people want it for what it is, what it can do, how it makes them feel, and elevates their personal status by having it.

So you, the entrepreneur, should be asking yourself:

Why am I not creating the Apple of [fill in the blank]?

We spoke about a lot of things but one thing we talked about encouraged me to get going on this post, which was about becoming an Entrepreneur In Residence, or EIR at a venture fund. Oren related to me how that, before starting his startup, that he went through an interesting process to become an EIR. My conversation with him allowed me to fill in some needed information about what I had already observed with EIRs. Also, I thought that this would be a perfect follow on to a recent post by Rob Go of Nextview Ventures titled So You Want to be a VC… and my resultant post The Path to Becoming a VC. After all, becoming an EIR is yet another way to get hired by a venture fund right?

What is an EIR?

First, what does that E stand for? I have seen E to stand for Entrepreneur, which seems the most popular. However, I have seen E stand for Executive (ie. “Executive in Residence”) and also the E has turned to D, standing for Designer (ie. “Designer in Residence” – see Jason Putorti who is most likely the person who became the first ever DIR at Bessemer). This does suggest some different functions that these folks do. So let’s discuss them first as xIRs, where x can equal any of the 3 meanings.

What does an xIR do?

There are many things that a venture fund might expect an xIR to do:

1. Discover/experiment/develop some next big idea for a startup – You are given an office space, phone, internet, maybe even a computer and then you spend time thinking up new business ideas. You then are given some time to work on them, and hopefully one of those develops into something that the venture fund will invest in.

2. You park until you find your next gig – Venture funds like to have smart people around. You might not have any real expectations although there may be some underlying ones, like they hope that you might join one of their existing portfolio companies and leverage your talent. So you becoming an xIR may actually be a recruiting tool. Or not – you might find a job elsewhere, but hopefully there was some goodwill generated for the venture fund by letting you park there for a while.

3. Due diligence help – Your areas of expertise may be of great help to the venture fund in helping to look at deals. You may be able to help them with due diligence and evaluating whether something is a great opportunity or not. .

4. Help their existing portfolio companies – You may be asked to go around to all their portfolio companies and help them if possible in your areas of expertise. I’ve known at least one Executive in Residence whose role was chiefly to help portfolio companies.

5. Sourcing more deal flow – It is well known that entrepreneurs hang out with other entrepreneurs. It may be hoped that you will bring some deal flow to the venture fund.

6. Any combination of the above.

What are the terms?

1. Compensation ranges from zero dollars to up to $250K/year.

2. Carry in the fund’s returns doesn’t seem to be something that is offered.

3. This arrangement can last from about 6 months to 1-2 years to until they let you go or as long as you need.

What else do you get?

1. You get to see the inner workings of a venture fund. Often you will get invited to sit in on deal meetings and board meetings.

2. Hang out in a posh Sand Hill Road office, or hopefully still posh but in a different location.

3. Get an office, phone, maybe computer in addition to pay. You will probably get business cards which improves your notoriety.

4. You get to attend firm events and parties, perhaps even speaking engagements.

How does the process start?

Venture funds are a highly relationship driven business (see Christine Tsai’s comment and my reply on my Path to Becoming a VC post). The probability of you getting an EIR job without knowing the VC beforehand is pretty low. So getting to know some folks in venture funds makes the process a lot easier than if you didn’t know any. They will want to have the most confidence that you can be valuable to the fund. Knowing you beforehand helps with that.

Part of knowing you is about what you have done, how well you have done it, and your expertise. I have never heard of someone coming out of college to become an EIR. Perhaps it has happened but I think very rarely. You don’t have enough experience or a track record behind you yet. I could see it happening from a Ph.D program where someone may have been working on something while at school and then is ready to commercialize it. More likely, you will be known to the venture fund through a portfolio company or through your notoriety in another company.

If you get noticed by a venture fund, you’ll probably get invited to come in for an interview. Most likely these positions aren’t advertised so venture funds tend to be able to choose the candidates; it would be a rare circumstance if you were able to interview for EIR positions at multiple venture funds.

How do you make a decision?

There are the usual considerations like compensation and health insurance, the poshness of the office, the reputation of the fund as you leverage it, and fringe benefits like free food in their fridge. However, the most important considerations are:

1. You like the people you will be working with, and they like you. Relationship is everything. If they offer you a job, obviously they like you, but do you like them?

2. The expectations and goals of the venture fund in your role as EIR match yours. If you are thinking that you just want to park somewhere until your next gig shows up and the venture fund is expecting you to build something so they can fund it, that’s bad! You could leave the fund with them thinking you’re not able to execute or are just a slacker. Make sure the reasons for you becoming an EIR there match theirs as closely as possible.

By the way, it does not appear that becoming an EIR is a good way to becoming an investor. Yes you’ll be working for a venture fund and see a lot of the inner workings of one; however, the expectation is not to train you to become an investor but rather to work on startups and startup ideas. That does not mean that you could not jump on the path to becoming a VC later on (see my post, 3 effective ways to jumping on the path, especially path 3).

I thought I’d repost and expand on part of my comment there as I thought it was complementary to his post. So how does one get on the path to becoming a VC?

Getting a job at a venture fund is one way to start your path to becoming a VC. But trying to work your way up through the ranks of a venture fund is tough and there aren’t that many jobs to go around.

Becoming an associate or principal is a great way to get introduced to the inner workings of a venture fund. However, your path to becoming a partner or someone of decision making power is very difficult – after all, most funds require their current partners to work on them for many years, including maintaining their control (ie. “we investors bet on this person’s skill for making great investments”) and incentives (ie. carry on the investments). It’s not likely that a partner is willing to give up any of that on their current funds, or even on future funds that they raise. More than likely you will have to work your way to becoming part of a team that raises a new fund in order for you to start gaining some independence and the incentives that come with it.

Some of the more effective ways are:

1) First angel invest and then raise money. In true startup fashion, you put up your own resources to make the bet that you’re on to something (your own skill as investor). Others notice you and then invest in you to invest their money. Putting up your own money, investing it, and making money proves more than anything you can do this work. Of course, losing it all is also in the cards so make sure this is not a substantial part of whatever wealth you have.

2) Get wealthy people to know and trust you. Investing is very much a trust based business. Who do you trust with your money? If you have connections and relationships with wealthy individuals and build their trust with respect to investing their money responsibly and with integrity, you could begin your venture career that way.

3) Start as an operator. The four big places I see this work are: CEO of a company, Corp Dev person, entrepreneur with big exit, and engineer at a “celebrity” firm like Google or FB. These positions can give you credibility to raise your own fund or get hired by an existing firm. More likely, the $ outcome results in you being able to start the path with step 1 above.

But given the lack of available positions, and the lessened ability to woo wealthy potential limited partners in today’s competitive and economic environment, you still have to exhibit something *really* special. There are too many people out there who are competing for that attention and their cash, and you really have to do better than “I want to become a VC”. More than ever, you have to answer “I am the best up and coming VC because….”

Also you’re going to have to let go of any arrogance about how great you are right now. I learned this back in 2006 when I tried to raise my own venture fund. I was just out of Yahoo and thought I had enough skills to pick companies and make money through investing in them. I had 9 years of work experience at Yahoo, 1.5 at frogdesign, and 3.5 at Apple before that, and a Stanford degree to boot. How could anyone NOT give me money to invest?

However, the investor community all said that my partner and I had great skills as operators, but they had no confidence in us to manage investments. After 4 months of raising, I got frustrated with hearing the same message over and over again. I stopped fund raising, set aside some personal funds and started angel investing to build up some investing track record. After 5 years of doing that, I realized I didn’t know diddly about venture investing back then and only now I’m starting to build some confidence that I know a little about what I’m doing. Through time and on multiple fronts, I’ve built some credibility as an investor in world full of investors who have a lot more celebrity and notoriety than I do (this alone is probably worth a post in itself). Thankfully, earlier this year, Launch Capital has taken a chance on me and I can begin learning more as an investor of someone elses money besides my own.

So even though I had that wonderful resume and education, about 14 years of work and a BS and MS from top schools, it has taken me 5 more years to *begin* to learn about a business I really knew nothing about, even though I thought I knew.

In the comment I left on Rob’s post, I mentioned talking people out of becoming a VC. I talk to them about my journey and all the really hard parts of the business underneath all the glamour and press. After I tell them all that, I look them in the eye and see what their reaction is, my intuition perking up to detect any sign of understanding or lack thereof. It’s usually at this point where I can see if they will *really* give it go and stick with it, or just quit in frustration because they couldn’t raise a fund fast enough.

Looking back on my path, it was a LOT harder and took a lot more time to build up to becoming a VC than I thought. There will always be people who happen to fall into it via luck or circumstance; awesome for them but they are definitely in the minority. Most of us have to spend a lot of time working at it AND proving that we actually can do this, and it will take a lot longer than you think.