How I became a… venture capitalist
Moving from ballet to the DaimlerChrysler assembly line might sound like a sequel to Flashdance, but it also describes the first couple of steps in venture capital founder Itxaso del Palacio’s career.
Dance was del Palacio’s first love. For 13 years she dreamt of being a ballerina and credits her ballet training for the work ethic and rigorous mindset she exercises today. But, when she turned 17, she had to make a choice and rather than ballet she decided to follow in her father’s footsteps and become an engineer.
Gifted in chemistry and physics at school, she decided to study chemical engineering and after graduating from the University of the Basque Country, walked straight into what she thought at the time to be the best job: working in quality management at car manufacturer DaimlerChrysler. That turned out not to be the case.
“It was probably the most boring thing I’ve ever done,” she says. “When I got into engineering, I thought working for a brand like Daimler was the best thing ever, so it was a big disappointment for me.”
She quit after a year and a half and went back to university, this time in Barcelona, to do a master’s in engineering before moving to California to complete a PhD in entrepreneurship and venture capital, with a focus on technology transfer. At UC Berkeley she worked with a professor who was primarily an investor – and her interest was piqued.
After a stint running her own business (Founders Fit, a ‘dating site’ for entrepreneurs looking for co-founders with complementary skills), del Palacio moved into the venture space. Starting as an associate, she worked her way up before being made investment partner for M12, Microsoft’s European venture capital arm, investing in emerging technologies from big data to artificial intelligence. Four years ago, she sat on a board with VC firm Notion Capital, which then brought her in as a partner.
“Venture capital is about investing in fast-growing businesses,” she explains. “Helping them and, ultimately, growing those businesses to an exit, a potential acquisition or an IPO. And that’s how we make money as investors.” What she loves about the job is simple: constantly learning about new things and being surrounded by brilliant people.
“The best part of being a venture capitalist is interacting with people who want to change the world; people who want to build something that makes people’s lives easier or that helps businesses perform better; people who want to change the status quo.”
This is the chief lesson she says she learnt after leaving her “dream job” at DaimlerChrysler. “I found out you can enjoy going to work every day when you love what you do and everyone you work with,” she says. “That’s what happened to me as soon as I started working in the world of investment.”
These are people like her, who love the challenge of constantly learning. Every day, she says, you’re faced with new subjects, new business ideas, new products and, as venture capitalists, you need to be able to understand what it is you’re being asked to fund, so there is something new to learn every day.
When it comes to deciding who to back, this is one of the main things del Palacio is looking for from an initial meeting with a founder. “It’s important that I come away thinking ‘wow, that was interesting, I learned something.’ They need to know more than I do,” she says. “I like to be impressed, to be a little bit wowed by founders.”
Besides this, she says, she is looking for founders who are “obsessed with building the best products, who are thinking of how to make users’ lives easier”. This product-led approach is crucial, which is why she looks for products that solve a problem. In common with most investors, she is drawn in further if these companies sit in large markets and if founders show a good understanding of how to acquire customers.
While the main upsides of working in venture capital include meeting inspiring people and helping them to achieve their ambitions, there is one major downside.
“The biggest challenge is saying no. Constantly,” says del Palacio. “Founders spend time with us and we need to thank them for that and appreciate it. Then we need to give feedback that will be constructive and improve their chances to succeed, rather than kill their entrepreneurial spirit.”
Sometimes, she says, rejected founders will work on their business model and return with an improved offering. “A lot of people have done that and I feel good about it.” She tries to make herself available to these people, to help them in any way she can.
This dedication to helping founders realise their ambitions is one element of what makes a great VC partner. At its core, del Palacio thinks VC is a career that requires the right balance of knowledge and personality.
“Some personality traits are difficult to change and aren’t easy to develop on the job,” she says. At Notion Capital, she explains, they deal in early-stage deals – seed and series A – with the firm working with up to 20 businesses at any one time. A successful VC partner needs to handle several projects and communicate clearly with large groups.
When it comes to knowledge, though, it is all about learning on the job. “It’s about deal repetition. You see deals in the same sectors, the same industry, the same business model and that allows you to identify the probable winners,” she says. “Repetition is, ultimately, the only element that will make you a good investor.”
But VC partners are there to do more than fund businesses. “You’re building a firm,” says del Palacio. “Just like any other business leader, you need to be fundraising, building relationships with investors, hiring people and training them, nurturing your pipeline.”
But the most important part of the role is to always be thinking strategically about how to continue to be the founders’ VC of choice.