I Have Found "Navigating the Partnership" a Particularly Difficult Challenge

[General] partners operate fairly autonomously and, if one is to attempt to get a deal in front of the general partnership for investment, it requires an understanding of which partner to work with and how to 'sell' the deal to them. Knowing the preferences and investment style of a particular person is tantamount to being able to push it through to investment successfully. In my personal experience, not having a very strong advocate for your deal before the partnership views it is a recipe for disaster. I view this as a variant on the concept of 'managing upward' and requires a few doses of people smarts and a dash of salesmanship.

Challenges Juggling the MBA-Friend and VC Firm-Allegiance Roles

There’s such hunger amongst the HBS graduate population to start companies that suddenly being on the VC side of the table presents tricky situations with classmates. Section friends start pitching you their startup ideas, and they’re just as (un)likely to be investable ideas as the rest of the startups out there. Juggling the HBS-friend and VC firm-allegiance roles is not easy. You want to be honest with friends, and you want to encourage their entrepreneurial aspirations, but it’s hard sometimes to balance telling friends how cool their ideas sound with the reality that they’re not cool/ready/big enough for you to go to bat in front of the general partnership on their behalf.

Decisions Based on Emotion and Momentum

It's easy to get emotional about investment opportunities in a partnership. "This company is mine, so if people don't like it, then it reflects badly on me personally." Really the goal is treating the companies objectively, but that's hard for people (especially successful people with egos) to do when they get involved/deep with a potential investment. This leads to a less honest dialogue and likely decisions based on emotion and momentum, rather than keeping objective through the investment evaluation process.

Lack of Data Pushes You Beyond Your Comfort Zone

[There is] immense difficulty getting confidence in predicting how things will develop. It is easy to plug 75% growth into a model, but that's far from it actually happening. With all this uncertainty, my perception is that one would want to be super conservative or have downside protection (ie. low valuations) to make up for this forecasting reality. However, good companies get funding and it can be competitive, so you're forced to push yourself beyond comfort. Balancing the uncertainty risk and a lack of sector expertise with competition on deals is the most difficult thing I have observed thisfar. Damned if you do (higher values than you're comfortable with), damned if you don't (nobody to take your money). This is much more of a problem with late stage investing I'd imagine.

[Related:] valuations are so subjective and small numeric tweaks can prove anything, so keeping that in check is key.

Hard to Evaluate Performance, Making it Hard to Establish a Reputation

Performance evaluation, at a partner and firm level, is really hard to do in this industry, short of just waiting for funds to return. There’s no objective way of judging performance until the full fund has returned because a single investment could turn a fund from a loser to a huge winner, and because just putting money to work doesn’t mean you’re doing it well. As a result, trying to establish a reputation as a new firm is tough, and figuring out where to put your money as an LP is equally hard.

Getting Little Guidance; Up to Me to Solve Problems

Most important thing to know coming into this sort of business is how little guidance there is from the folks you work with. This is pretty typical of venture from what I’ve heard in speaking with others, and it’s definitely the case at [my firm]. I meet with the partners once a week, on my own initiative, to talk through what I’m working on, and other than that, it’s up to me to solve problems and get work done. It’s been quite refreshing, but you’ve definitely got to push yourself to be productive.

Surprising How Little Data Goes Into a Decision

The single most surprising thing has been recognizing how little data these guys have to go on. I had an inkling that would be the case, but especially coming from a PE background where we diligence the heck out of everything, have tons of historical info from the company, typically have industry studies, 3^rd party experts, etc, seed stage venture guys (which is decidedly where [my firm] sits) have next to nothing to go on. Their feel for the entrepreneur, how the idea sounds, most importantly, reference checks on the entrepreneur and their team… and that’s about it.