How To Become The Greatest Venture Capitalist: Lessons From The Masters

Venture capital is a highly competitive field that takes a lot of skill, knowledge, and dedication to succeed.

In his book, “How to Invest: Masters on the Craft,” David Rubenstein interviewed some of the world’s leading investors and asked them to share practical lessons about what it takes to pursue a successful career in investing and build firms that endure over the long term. The list is long and distinguished, including Larry Fink (Blackrock), Seth Klarman (Baupost), Ray Dalio (Bridgewater), Jim Simmons (Renaissance), Marc Andreessen (Andreessen Horowitz), Michael Moritz (Sequoia Capital), and David Blood (Generation) – and of course David himself is the founder of the venerable private equity firm Carlyle.

I had the opportunity to sit down with David and dive into what his book means for venture capital and startup innovation. Here are five key take-aways.

Go Against Conventional Wisdom

Rubenstein explained that “The most common characteristic of successful investors is their willingness to go against the conventional wisdom.”

It is easy to jump on the current bandwagon – generative AI today, crypto before and AR/VR before that.

This is not how the best investors succeed.

Going against conventional wisdom can be risky, but it can also lead to great rewards. This is particularly true in venture where the opportunity of being contrarian is even larger. By being willing to go against the crowd, venture capitalists can position themselves for greater success in changing environments.

Balance Inspiration With Doing The Work

In investing, inspiration matters. Rubenstein believes that great venture investing relies at least in part on “gut” – successful investors need to have a feel for whether an entrepreneur can make it or not.

But this must be balanced with actually doing the work.

Investment success comes from expertise. He advises young investors starting out to specialize in one theme in one geographic area, and then build out from there.

When looking at deals, investors need to pay attention to the details. Rubenstein emphasizes that investors need to put themselves in a position where they assume that almost everything will go wrong. Investors need to have thought through all the downsides of an investment and what can cause them and how they can be mitigated.

But even understanding these downsides, venture capitalists can’t be so frozen that they are afraid to do anything. Ultimately, for Rubenstein, the best investors don’t just rely on their investment committee memos.

In many ways, inspiration comes from copious preparation – to paraphrase Einstein’s famous quip. Ultimately, for Rubenstein, “it’s challenging to teach someone to be a great investor, as it requires instincts, courage, and experience.”

Cultivate Orthogonal Learnings

Rubenstein emphasized the importance of stretching one’s brain and developing skills to think outside of the box. In the interview, he stated, “You have to be willing to learn throughout your entire life. You have to read voraciously, not just about investing, but about culture, the arts, and other things.”

This perspective informs his own commitment to the arts. Rubenstein is the chairman of the Kennedy Center for the Performing Arts, National Gallery of Art, Council on Foreign Relations, and formerly chairman of the the Smithsonian Institution. When I asked him what fatherhood advice he had for me, he told me that “art and culture are very important things for children to learn about. It’s not just about reading, writing, and arithmetic. It’s about trying to understand what makes us human and what’s important in life.”

Be Humble, Resilient And Learn From Your Mistakes

Venture investing can be a rollercoaster ride, with many ups and downs along the way.

The best investors take responsibility for their mistakes. In fact, he observed that many of the greatest investors had faced large losses – from which they learned valuable lessons. As Rubenstein puts it, “Investors who are willing to admit their mistakes and learn from them are more likely to be successful in the long run.”

And to ride this rollercoaster of emotions, the best investors need to be resilient, and remain focused on the craft.

I have written about the counterintuitive profiles of the most successful entrepreneurs that defy the 22-year-old hoodied warrior stereotype: the most successful founders tend to be older, industry experts and immigrants. Similarly, Rubenstein highlights that the most successful investors did not grow up in privilege. They tended to be middle class or blue-collar families, with strong work ethics, a deep understanding of the value of money and a desire to succeed.

The best investors coupled this drive with a willingness and openness for feedback from others – including those they disagreed with. This attitude ensures venture capitalists can weather the storms of the industry and ultimately (and hopefully) come out stronger on the other side.

Build A Diverse Network Of Contacts

Building a diverse network of contacts is critical for successful investors. Rubenstein stressed this as both an attribute of the most successful investors in general and specifically for venture capital.

A strong informed network helps investors stay informed about investment opportunities and market trends, develop expertise and get access. He notes successful investors like Marc Andreessen have built their careers on their ability to build relationships and connect with the right people.

By building a diverse network of contacts, venture capitalists can gain insights into the industry and gain access to the best investment opportunities. Venture capital firms compound this network advantage over time.

Parting Thoughts

Rubenstein’s insights provide valuable lessons for those in the innovation industry, venture capitalists, and startup founders. By emphasizing specialization, networking, and humility, investors can create a strategy for success in the world of investing. Innovation requires taking risks, going against conventional wisdom, and pushing the boundaries to create something new. With Rubenstein’s experience and insights, young investors can learn from his and his interviewees’ advice and use it to build their own successful careers in the world of investing.