Introduction

MY BACKGROUND

I still remember the state of the economy when I graduated. It was an important time for me. Interviewing for my first real job out of UC Berkeley felt like the culmination of all my education and life preparation-and at that point, the economy was a bloodbath.

I remember high-achieving graduates having their prestigious offer letters rescinded after already proving themselves during summer internships. Brilliant people who could not find alternative options because employers had already made all their entry-level hires. I remember record unemployment and so many students going back to live with their parents, jobless, and unsure how they were going to pay off their student debt. I saw how that experience turned my entire graduating class into risk-averse working professionals pursuing careers in the highest-paying, lowest-risk, and tried-and-true jobs available out of college.

Meanwhile, I didn't have a home as a fallback. At that point I couldn't go back to my childhood home in Salt Lake City, Utah. Everyone I had lived with had moved away. My standard operating model was already to "figure it out." I have lived without my parents since I was 5 as a first-generation immigrant. I had a lifetime of being different and I had no idea what to call my experience until the pejorative term, "anchor baby" was popularized on the news.

For my graduating class, that highest-paying tried-and-true job in business was investment banking. Only a small number of students were able to break into it, and in the midst of record unemployment, we were incredibly grateful for the opportunity to work 100+ hours a week. My first year in investment banking started with providing investment banking services for financial institutions like AIG, Metlife, and Cigna and then a second year for technology companies like Facebook and GoPro.

Venture capital is seen today as one of the most visible careers in finance, making headlines with each startup unicorn ($1 billion+ valuation) milestone. It has been the genesis for some of today's most successful companies like Google, Airbnb, Instagram, and many other startups that are now household names.

During my time in banking, as my peers moved to tried-and-true roles at private equity firms and hedge funds, I stubbornly pursued a career at the intersection of entrepreneurship and emerging business. I was one of the few candidates to both interview and receive an offer at a venture capital firm in 2012. I joined Trident Capital, an enterprise-first VC with specializations in adtech, business services, cybersecurity, and healthcare IT. I joined the cybersecurity team as an associate and that's where I met Alberto Yépez and Don Dixon, the core group I would work with for the next decade, first, at Trident Capital and then at our spin-out to create the sector-focused Forgepoint Capital, a leading VC firm with its roots in cybersecurity.

Over this decade the economy picked back up and, with it, a shift from risk-averse thinking to risk-tolerant investing. This led to an exponential growth in venture capital over the past decade as well. While I have had the chance to work with many aspiring venture capitalists (VCs), I've also seen many fail to make it a long-term career. These are hard-working, smart, motivated people with all the right credentials and skillsets. It doesn't make sense: they are incredibly bright and capable, and every bit as deserving as me or more. So what happened?

I've wondered if it's because they've struggled with something that frustrates me too and was actually one of the biggest inspirations to write this book in the first place. When I first started in venture, I didn't have any frameworks or background, so in my early career, I had to hit a lot of dead ends in order to finally piece things together. Sure, there were random books that addressed financial models and the tactical aspects of being a good investor. Perhaps you could read VC blogs for specific insights but it's not like anyone sits you down and says "This is how it works" in simple terms. So this book is my attempt to do just that. I hope this guide and the Venture Capital Investment Framework (VCIF) help others learn from my mistakes in order to aid their own journey through the murky maze of venture capital.

As I reflect on where I am at this point in my career and its challenging beginnings, I am grateful for having taken the path I did and feel lucky for what I was able to learn and do as a result. I was one of a handful of people who got to work with one team, to start from the bottom and work my way up through the ranks. Simultaneously, I helped to build a venture capital firm from the ground up. I've gotten to see first-hand how to found a successful VC firm, from raising the capital to establishing the team, the strategy and the investment approach, to making the investments and working with exceptional entrepreneurs to build thriving companies.

Throughout, I've had the opportunity to observe senior, experienced people across multiple venture capital firms make decisions, and I've worked with and learned from brilliant mentors over the years-yet, amazingly enough, none of these opportunities guaranteed my success in the VC industry. Same goes for so many others who have tried to make it in VC.

Venture is still very much an apprenticeship industry that is mentor-led yet requires a self-driven mindset. You have to do a lot of self-education, learn by doing, and get up to speed quickly. What happens when you work with seasoned investors who are experts at what they do is that by simply watching them, hearing the questions they ask and taking note of the approach they take, you develop an understanding for what they see as important. You come to understand how they try to rationalize key decisions in order to persuade all parties of what they believe to be the best path forward. You end up using your powers of perception to pattern-match and figure out why they felt positive about one discovery, and negative about another.

Because of the nature of on-the-job mentoring, you can't expect busy VCs to describe exactly what's going on while they're being pulled in multiple directions. That just doesn't scale because each mentor has multiple mentees, they serve on multiple boards and have to look after their portfolio companies, and, on top of that time commitment to mentoring, they have firms to manage. Mentors are not classically- trained teachers or coaches who make the learnings or plays explicit--that's not how mentorship works, especially in venture. The opportunity for a person new to the industry is to be in the same room, to see the same data as a senior investor, to help digest the data in the style the senior investor thinks is the best format, and then to gradually build the credibility to help influence the decision the team makes.

I'm one of those mentors in my community. I enjoy spending time investing in people, whether I am helping someone choose between multiple job offers, working with founders to make critical decisions, creating qualified win-win connections between opportunity and talent, suggesting skills that will position someone for their next step, or helping them foretell what the decision-makers are considering behind the scenes. To be good at this requires that I understand, enjoy, and, over time, build empathy for almost every type of role within the startup ecosystem.

The common theme across our ecosystem is that everyone follows their respective learning curves by doing, by trying, sometimes succeeding, sometimes failing, and always learning from those various experiences. They need exposure to startups, perhaps by investing in their careers and joining or founding a startup, by investing their budget and purchasing from a startup, or maybe by investing either their own capital or their investors' capital in startups or venture capital firms. If they were lucky, they made informed decisions and learned from the decisions with the help of a mentor or advisor.

Unfortunately, many people never get the opportunity to get exposure to venture capital, let alone develop deep mentor relationships.

Despite all that exposure to experienced investors and rapid company growth, making money-losing investments is still expected: it's common for 20% or more of venture capital invested to go to zero (called "venture capital loss ratios").1 This is almost the exact opposite model of the leveraged buyout (LBO) private equity model where the priority is investing in a company that can capably and predictably pay down the debt on their balance sheet. For traditional LBO private equity, loss ratios are significantly lower.

With so much risk in venture capital, that means that the winning investments are rare and impactful. Everybody wants to know, why did you invest in a successful company X, Y, or Z? Attend any panel about venture capital featuring any successful VC and they always get asked why they invested in a particular company that hit a major milestone or exited. This is because there is a lot of room for interpretation about what makes a great opportunity.

For example, almost every mega-successful founder will have dozens of stories of how they pitched their ideas to VCs and were...