The tech journo to VC pipeline is real (and makes sense)
Over the years, we’ve seen a steady trickle of tech journalists leaping the fence and heading for the VC world. (I was one — I went from TechCrunch to starting my own startup, then joined a VC fund for a couple of years).
A number of people don’t seem to understand how that makes sense, which is surprising to me, and makes me worry that a lot of startup founders don’t understand how VC works as deeply as might behoove them. So, here’s a quick breakdown of why journalists (can) make good investors.
Somewhat simplified, but in broad strokes, investors have four jobs:
Deal flow: You have to find startups that are raising money and that fit the firm’s investment thesis. This is known as deal sourcing, and is roughly equivalent to the top-of-funnel problem a lot of startups have. If you are Sequoia or a16z, the problem is that everyone and their dog is pitching you non-stop, 38 hours per day (because timezones). If you’re not one of the top best-known investors, you have the opposite problem: You’re going to be fighting to get into the best deals. Here, it helps if you have a really broad contact network, love networking or have access to some proprietary source of deals.
Invest: Once you’ve found your potential investments, it’s due diligence o’clock. Does the company make sense? Is the market big enough? Are the founders good enough? If the company ticks all of the boxes, you write a term sheet and make the investment, which can be a pretty chill affair (“hey, we’ll give you $1 million for 15% of your startup, we cool?”) to, well, something rather different, such as if you end up in a bidding war with half a dozen venture funds who all want to lead the round and get a slice of the startup pie.
Board work: Once the investment is made, you may get a board seat as part of the package, which means you’ll be spending a bunch of time trying to help the startup founders as much as you can. This can be a really involved, intense process where you talk with your startups pretty much all the time, or a lot more laid back when a company is just cruising along doing its thing and beating all expectations without much intervention.
Run the firm itself: On top of all of this, you have to run the venture firm as well. This includes big strategic things, like creating an investment thesis and raising money from limited partners so you have funds to invest. It also involves a bunch of less sexy, more mundane things, like running operations for your office, dealing with systems and processes, reporting progress to your investors, regulatory compliance and the hellscape quagmire that is tax reporting for a venture fund. And maybe throw a party or two every now and again.
Now, if you think about what a tech journalist does, it isn’t hard to see how a good, well-connected reporter who is good at their job ends up having a ton of transferable skills. A good nose for sniffing out bullshit comes in handy, as does the ability to be able to ingest and process huge amounts of information. Having a large list of sources can convert into a solid stream of deal flow, and having in-depth knowledge and context of a particular market is a godsend.
Journalists are sent a godawful amount of pitches for stories every day, and being able to filter them quickly and connecting it all up with what’s happening in the broader market is a necessity. When you think about it, that isn’t all that different from the first sift of inbound pitches a venture firm receives. The main difference, of course, is that a reporter can bang out a story in a few hours, and if we get it wrong, the worst thing that happens is that we wasted some hours, and we’ll need to correct it. As an investor, it’s that plus however much money you end up investing in the company. The stakes are higher, but the skillset isn’t that different.
In the due diligence process, being able to pick up the phone and sense-check information or views on the market with someone who is deeply embedded in the industry is fantastically valuable.
Of course, there are aspects of investing that reporters don’t typically have experience with; board work is one of them, another is the day-to-day operations of running a firm. The thing is, though, those things can be learned and taught a lot more easily than the skills an experienced reporter brings with them to the job. Besides, venture investing doesn’t operate in the minute-by-minute timescales that a busy newsroom runs at. VCs operate in years and decades, and learning on the job is imminently possible.
Put simply: It’s quicker to teach a reporter how to write up a term sheet than for a recent MBA graduate to build a huge contact network and deep domain expertise.