What qualities make product managers great at venture capital (and which don’t)
What qualities make product managers great at venture capital (and which don’t)
Musings at the intersection of product management and venture capital, a brief story from a PM turned VC and everything in between
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PM to VC career transition
As the product management profession is maturing, there are now multiple specializations within product, including four that have been comprehensively outlined by Reforge: growth PM, core PM, innovation PM, and platform PM. When it comes to growing upwards, there are also plenty of options — senior PM, lead PM, group PM, director of product, CPO, etc.
Let’s state the obvious: VC isn’t one of them. Career transitions from product to VC have been fairly uncommon; while there are a few great examples (I will list some of them at the end of the article), this is not a mainstream path.
With all that in mind, multiple factors make product management a great starting point for venture capital. In this article, I am going to outline 8 factors that make PMs great at VC and 3 factors that can cause trouble.
Key highlights:
📈 PMs at early-stage companies are best suitable for VC roles focused on early-stage startups, and PMs at late-stage companies — for roles focused on late-stage
🧑🤝🧑 Focus on people, the ability to keep the beginner’s mindset, first principles thinking and several other characteristics help good PMs to become good VCs
⬇️ Some attitudes like the need for immediate results can make it hard for some PMs to successfully transition into venture capital
💡 Diversity is critical for VCs to successfully pick outliers, and people with a background in product offer a unique perspective
Qualities that make a good PM a good VC
Knowing that it’s all about people
Product managers know that it’s all about people: it doesn’t matter if the product strategy is very robust if the roadmap is well researched, and if the opportunity is “huuuuuuge”. If a PM is not able to turn other stakeholders into champions and allies, their initiatives won’t go anywhere. Building relationships, establishing communication channels, and forming strategic alliances are equally important for those in product management and venture capital.
Another example of PMs & VCs being focused on people is networking. Product managers are natural at this: having “coffee” chats with peers from other companies, attending industry events and conferences, publishing content online, and continuously expanding personal networks are a must in this space. VCs do all this as a part of their “full-time job” (whatever that means in 2022), as their personal brand often defines what opportunities they will be able to access.
Having a beginner’s mindset
Product managers are continuously looking for ways to stay up to date with new developments in their industry, in tech, and the world in general. They know the world is changing fast, and to keep up they have to develop a growth mindset. Most product managers are not domain experts, and many change the field they work in every few years (I worked in edtech, fintech, and cybersecurity, to name some). This means that every few years they have to quickly become experts in a new market, understand the market structure, the rules of the game, trends, incentive systems, and everything else needed to build products that make companies win.
In the same way, VCs are meeting founders, reading industry reports, and hearing ideas that will disrupt markets daily, so the ability to learn, synthesize the vast amounts of data into insights, as well as the ability to zoom in and zoom out are critical to long-term success.
First-principle thinking
First principle thinking is a problem-solving method where you break a system, a process, or a situation down into its fundamental parts and then arrive at a solution by reconstructing them. Thinking by first principles is key for product managers when tackling complex problems with many variables, assumptions, and opinions in place.
Product manager’s abilities to understand the current & desired states (often using frameworks like Jobs to Be Done), get to the first principles (often with the help of tools like 5 Why), and then build a solution and explicitly test assumptions (with the help of the lean methodology) are useful for making well-researched investment decisions as VC.
Thinking in bets
In her book Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, Annie Duke introduces the idea of treating decisions as bets, which in turn enables us to find opportunities for learning in uncertain environments. As a seasoned player, she uses poker to illustrate the complexity of making decisions with limited information. Any decision with an uncertain outcome is a bet, whether it’s building a product or investing in a startup.
In product management, it’s hard to accurately predict what new products or features will be successful. Customer needs and wants are constantly evolving, and so are the markets.
Good product managers and good VCs should master the skill of thinking in bets, and use every decision as an opportunity to learn and improve their decision-making. PMs that do it well when leading product, will also make better decisions as VCs.
Understanding what it takes to launch a product
Product or service is at the core of every business. Traditionally, VCs would come from an investment/finance background, or an MBA, and therefore they had limited understanding of what it takes to launch a successful product — from ideation and customer discovery, through development, MVP, multiple iterations, and the overall go-to-market strategy.
Having a strong background in product is incredibly helpful not only to probe the founder’s ability to execute and ask the right questions but also to add value as an advisor post-funding.
Knowing how all the elements of the business work together
To drive the desired outcomes, good product managers develop an intimate knowledge of how each stakeholder group thinks, how they work, how they process information, what they value, and what incentive structures are at play. It is this knowledge that enables them to work with sales, customer success, data analytics, marketing, engineering, legal, finance, operations, procurement, and other teams to ship successful products.
This broad generalist’s knowledge allows VCs to ask the questions during the due diligence process that uncover the real state of the business, and to provide support in the right areas after the company receives funding.
Lastly, PMs don’t simply work with different stakeholder groups; they masterfully connect people and opportunities across the whole organization. It’s this ability to be a natural human connector that enables them to become a great VC.
Always looking for ways to add value
Both good PMs and good VCs are always looking for ways to help and add value. For good VCs, helping startup founders is a lot of what they do day-to-day. PMs, on the other hand, continuously look for ways to help their peers at other companies with their challenges. Whether it’s figuring out the go-to-market or new ways to expand the product-market fit and grow revenue, good PMs are always there for their peers and early-stage founders to help.
As they say, every successful product has someone who really cares; I think one of these people is a PM. I can also say that every successful startup also has someone who really cares (and one of these people is a VC).
Being vision-driven and data-informed
When considering new investments as well as helping companies post-investment, good VCs take a thesis-driven and data-informed approach. In other words, it is important to support the founder’s vision and it’s equally important to challenge assumptions, test hypotheses and look for evidence that the world does, indeed, match the vision (or will soon). This is where listening becomes a critical skill to hear the reaction from the market. In the same way, being vision-driven is critical when investing in a market that doesn’t yet exist.
Good product managers do the same as it enables them to de-risk their decisions and ensure they don’t commit more resources than is needed at a certain stage. Both VCs and PMs have to focus on the right metrics and look for signals that support or do not support their decisions.
Being a self-starter and relying on their own support systems
It’s often said that product management is a lonely job: PMs have their area of responsibility, and they are expected to drive the outcomes in these areas. While a PM works with engineering, design, and many other teams, they are not a part of these teams.
This is a very similar form of loneliness to that of VCs who generally work on their portfolio and only a few times a week collaborate with others on due diligence, investment committees, and similar.
Good PMs know how to build their own support systems, and the experiences doing so become handy to those who move from product into venture capital.
From the trenches: Francis Rosenberg, Associate at GSV Ventures
Here is the story from a PM turned VC Associate that illustrates how some of these characteristics play out in real life.
“My time in PM has helped me immensely as a VC for three main reasons:
i) I have experience building software with my team, so I can bring unique insight into how the product development life cycle really works to all I do as a VC from sourcing, to relationship building, to due diligence, and even making the hard decisions at investment committee.
ii) I developed communication and leadership skills building products with cross-functional teams across levels and departments that enable me to better communicate with stakeholders of all kinds and personality types both internally at my firm and externally with founders, partners on diligence calls, etc.
iii) My product mindset muscle helps me understand product-market fit and the true value a venture plans to bring to customers at scale. I can step out of my role as an investor and into the role of the customer and ask myself if I truly believe in the product, mission, and vision of a firm
Coming from PM to VC, vs. a more traditional path, does have its challenges. You must prove aptitude for and be genuinely interested in the financial aspects of venture investing and put in the time and effort to improve as fast as possible.”
What doesn’t translate well from product to VC?
Wanting to see the results immediately
Product managers are used to seeing the results of their work quickly. There is a solid argument to be made that this desire for “instant gratification” can lead to over-optimizing for the short-term at the expense of long-term thinking, and this can lead to bad results. Still, the results of the product work more often than not show earlier than results of the VC investments which normally take 4–8 years.
Product managers need to learn how to play a long-term game; a game that can’t be easily won by A/B testing an investment or trying different approaches as an MVP. Some things (including VC) just take time, and there are no shortcuts: you have to wait.
Inability to zoom out and see a bigger picture
As I’ve said, product is an important factor shaping startup success, but it isn’t the only factor. To be a successful VC, a former PM needs to be able to zoom in and zoom out, and to take into account other, non-product factors required for success, such as the founder’s background and their ability to lead teams, finance, sales, and more. While product leaders (director/VP/CPO) generally have no problem thinking holistically, some mid- and junior-level PMs who have not needed to look beyond their product might struggle a bit.
Inability to give up the product ownership
While having a strong product background is very beneficial for a VC, it’s important to understand that VCs do not lead product. The job of the VC is to pick a startup they believe has a compelling vision combined with the founder’s ability to execute on that vision. In other words, it’s the company’s founding team that will need to assess and size the market, conduct customer discovery, and define the go-to-market strategy. VC is there to support, yes, but he or she won’t (and shouldn’t!) guide the product strategy.
The startup team needs to have the ability to learn about their customers, understand their market, and hopefully reduce the cost of mistakes by leveraging the tricks in the product management toolbox. Therefore, outcome-focused PMs who are servant leaders and who have built empowered teams are better suited for the VC role than PMs who feel the need to be involved and micro-manage the day-to-day work.
Conclusion: diversity is a key
As Jasper from HV Capital said at the Included VC kickoff, “venture capital is a business of picking outliers”. There is substantial evidence that a firm cannot find outliers when each member of the team comes from the same background. Diversity is key both for innovation (startups) and picking the outliers (venture capital firms). There is a lot that people with a background in product bring to the table, and I am confident we will be seeing a lot more product leaders moving to VC in the coming years.
Examples of people who moved from product to VC (or vice versa)
Amy Sun, formerly a product manager at Uber and Facebook. Amy is now a founder of Daylight Labs after having spent almost three years as a partner at Sequoia.
Ashley Carroll, formerly a director of product at DocuSign. Ashley is now a VP of Product Management at Procore Technologies after having spent three years as a co-founder and CEO at Social Capital.
Bryan Offutt, formerly a product manager at Palantir and MemSQL, is now a partner at Index Ventures.
Francis Rosenberg, former product manager at Esurance, is now an associate at GSV Ventures.
Kevin Lee, formerly a product manager at AltSchool and Kabam. Kevin is now a Co-founder of immi after having spent two years as a principal at Pear VC.
Maxim Baban, formerly a venture analyst at Plug and Play Tech Center, is now a Product Manager at Lendflow.
Sherman Leung, formerly a product manager at Mango Health and PatientPing, is now a healthcare investor at AlleyCorp.
Todd Jackson, formerly a product manager at Meta (Facebook), director of product at Twitter, and VP of product at Dropbox. He is now a Partner at First Round Capital.
Zach Ware, formerly head of product at Zappos, is now founder at Freehouse Capital Partners.
A huge thanks to Maxim Baban & Francis Rosenberg for their help in making this article happen.