How to bootstrap your way into becoming a VC

By boris, August 31, 2015

One of the most common questions I get is “How can I become a Venture Capitalist?” I suppose this is because to many people, being a VC is a coveted position: you control large amounts of money and can pick and choose where that capital goes. [But let me tell you that the VC business is also much tougher than anybody imagines from the outside]

The traditional career path in venture capital has been around for decades. You start working at a firm as an associate, with the assumption that your hard work will pay off and you’ll become a principal, and then make partner. But today, there’s an equally viable route where one can bootstrap his or her way to becoming an investor. This is the path I took after selling my startup to Amazon.

The rise of the bootstrapping VC is made possible by micro-funds. An investor no longer needs to raise $100 million; a $10 million fund puts you right in business. In addition, the concept of a single general partner (GP) has become pretty widely accepted among investors now. Go back just 10 years ago, and most investors avoided solo GP funds. If you’re an entrepreneur considering the move to VC via a non-traditional route, here’s my advice:

Do your homework

The beauty of the web is just how much information is now at your fingertips. Many in the VC community are incredibly generous when it comes to sharing their insights and experiences via blogging and social media.

In this respect, my mentor was Fred Wilson, one of the first investors who blogged on a daily basis. I still remember Fred’s series on Venture Fund Economics from back in 2008. There have also been posts about the appropriate loss ratio for an early-stage fund and how the start-up landscape is changing.

Keep in mind that Fred was blogging this nearly eight years ago – a time when blogging and sharing knowledge was definitely not the norm for VCs. Today, you’ve got countless options; my advice is to find a couple of different investors and follow their blogs and tweets regularly. You’ll learn about the industry as well as the in’s and out’s of investing strategy.

Start with small angel investments

Reading and research is the first step, but at some point you’ll need to dive in and start investing. Between 2008 and 2011, I made around 35 investments with my own money. Through the experience, I learned about what and who to invest in, along with what and who to avoid. At the same time, I was also building a track record.

At this point the actual amount you’re investing is less important – it can be just $5K per deal. The key is to invest in a wide variety of deals so you start learning from your wins and losses.

Build your brand

The third step is to build your brand and network in order to attract dealflow and co-investors. If you went to Stanford or worked for a company like Google or Facebook, then you inherently have a great network. But if you don’t already come with a natural network, you’ve got to put the effort in. As an example, my friend Semil Shah has done an amazing job building his brand through a combination of smart writing, social media, and organizing get-togethers and targeted conferences.

In terms of networking, your location is important to a certain degree. For me, Vancouver is home. While it’s got an active startup scene anchored by companies like Hootsuite, BuildDirect, and Clio, it’s not a huge tech hub – and certainly wasn’t eight years ago when I got into investing. This meant I needed to build my network by frequent trips to the Valley, Seattle, NYC, Toronto, and Los Angeles.

Try to identify the key people in each of these start-up hubs and be bold (yet polite) in offering to buy them coffee. In the smaller ecosystems, you will probably be connected to 80% of the important people within your first two to three visits. Given its size and activity level, the Valley will always require an ongoing effort.

I also spent one month working out of the Union Square Ventures office in New York, and one month in the First Round Capital office in San Francisco in order to get a deeper understanding of the start-up world in these two worlds.

The bottom line is if you want to become a VC, there are plenty of paths in front of you now, some traditional and others less so. Bootstrapping isn’t necessarily a short cut to success. There’s a lot of hard work and risk involved, but you do have the chance to experiment and be autonomous along the way.

  • Great journey, and it has some parallels to how I’m graduating to a micro fund VC.
    I wouldn’t under-estimate the importance of the brand building that you mentioned.

  • bwertz

    agreed – especially as the noise level has dramatically risen in the micro VC space as of late

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  • Nice article! Would you say that your sale to Amazon really facilitated the rest of your process of becoming a VC? That seems to be the hardest part. 🙂

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  • Interesting to see how the barriers to entry have been lowered (with a lot of hard work, focus and creativity) – much like it has become “easier” to launch a startup. Enjoy the journey!

  • Ben Wiener

    Great piece. I am following this approach pretty closely in Jetusalem with Jumpspeed.

    You’re right that Fred, Brad Feld and others used a new medium (blogging) to build their personal brands- I wonder now that there are so many bootstrapping / micro-VCs springing up everywhere, what the new “new” way to build brand and differentiate is / will be (even Twitter seems saturated)? And does the extensive time invested in blogging / social media take away from time spent finding / evaluating / building great companies?

  • bwertz

    Great question re the “new way of branding” and I am not quite sure – but I generally think micro-VC’s will have to try to specialize / focus more and more to stand out in a crowded market. Here at Version One we are trying to do this by doubling down on marketplaces, social platforms, & SaaS, areas we feel we have the deepest experience in.

  • bwertz

    fully agreed – very much following the development of how start-ups get built these days.

  • bwertz

    To follow the “bootstrapping” strategy you definitely need to have some investment capital – but it doesn’t have to be millions. If you do 30 investments at $5-10K, the capitals requirements come down to the cost of a MBA.

  • Well if you put it that way, I wish I would’ve saved my tuition money! 🙂

  • I have no money and started. I put in a small amount of my own money (which was painful to me) to show skin in the game. So to start, I tried to prove out flow and picking.

  • I still think the combination of Twitter + blogging is great, but it takes times, years even…and over that arc, it has to be organic. But that only opens the door. Once the door is opened, founders need to want to associate with you, and that’s hard, because sometimes trust online doesn’t translate offline. But, your question is right — what is next? People are building software platforms to help them scale or pick better, but I think the only thing left is personal brand — not firm brand. No one cares that XYZ fund invested, they want to know “who” specifically did. That’s the challenge collections of GPs face.

  • Makes sense. Thanks!

  • Brian Sheng

    When you first started, how did you get the opportunity to work with USV and First round? Was it through pre-existing relationships?

  • bwertz

    Mostly relationships developed through co-investing with them

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  • I agree that the public needs to understand the real you & what your genuine message is.

  • but also, they have to have a reason to listen. just having money doesn’t do it. people have to reveal who they really are, what they stand for.

  • Serik Kaldykulov

    This is so true. Also patience is key, I think.

  • It appears to most of the public that I have a team & resources to let people get to know the real me. Until funded, I’m a one man operation with hackers all over me. Spending 18-20 hr. a day working is more than enough. Hope to have help soon.

  • Aaron Endré

    Are you seriously suggesting that having $150,000 – $300,000+ in disposable income with which to angel invest is “bootstrapping”?

  • bwertz

    It is as close to bootstrapping as raising some money from friends and family for your start-up is – and if you don’t have the disposable income, you could organize an Angellist syndicate. Besides semantics, the point was that getting into VC in a non-traditional way is easier than ever before.

  • Aaron Endré

    Then the title should be, “Getting into VC in a non-traditional way is easier than ever before”. The term “bootstrapping” has a definition (and friends-and-family funding is NOT bootstrapping), so please don’t misuse it for click-bait. If it takes $150,000 to “bootstrap”, then becoming a VC is still actually only possible for the richest .01% — which means that the VC landscape will continue to be dominated by white men who were already wealthy.

    I guess I’m just disappointed because what your article boils down to is: have money to get money. And that’s not news.

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