April 27, 2015

Why We Need More VCs with Engineering Degrees

It’s no surprise lots of tech entrepreneurs have engineering degrees. One study found 50% of US-born founders had a STEM degree of some kind - and that figure is higher for foreign-born entrepreneurs. But when it comes to funding tech companies, it’s rare to find VCs with engineering backgrounds. Sure, there are a handful of entrepreneurs-turned-VCs with hardcore tech degrees, but, far more often, VCs have MBAs. Traditionally, many VCs got their start on Wall Street and then transitioned to private equity later in their careers.

Unfortunately, the dichotomy between the “tech people” and the “money people” has sometimes created friction between funders and founders. When misunderstandings arise, VCs often feel techie entrepreneurs miss the big business picture and don’t focus enough on profitability. Meanwhile, engineer founders can feel their VCs are out of touch with the latest technologies and have only a basic grasp of their products. Though thankfully, this is easy to avoid when VCs and founders create a supportive relationship based on mutual trust from the get-go.

But there is a movement afoot that may begin to narrow the gap: more engineers are taking the road to venture capital. My own career is an example of this path. With a degree in chemical engineering from the University of Michigan, I set out to find a large chemical conglomerate. But I instead joined Motorola, fascinated by semiconductor engineering in the fast-growing telecom sector. I loved tackling big challenges, designing processes to solve these problems, and then integrating designs into a larger system infrastructure. I enjoyed thinking in such a process-oriented way.

Soon, however, I began to see that engineering for engineering’s sake, without a larger business perspective, represented only half the picture. I wanted to learn how to apply engineering principles to business problems, so I went to London Business School to get an MBA. I applied my process-oriented thinking to finance, building financial models to value high-growth companies. I thought I would head to Wall Street after I graduated, but the tech side of my brain kept nagging at me. I was intrigued by the technical advances in the telecom industry at that time and took a job at Lucent. While on the team that developed Lucent’s 4G strategy, I worked with lots of startups that were developing innovative applications as part of the burgeoning 4G ecosystem. That’s when I got bitten by the startup bug.

Now, as a VC, I approach investing through a multi-faceted lens: engineer, corporate strategist, and finance professional. The biggest benefit to having an engineering degree is it helps me relate to founders in a different way. As an engineer myself, I not only speak their language, but I understand their thought processes and how they approach problems. Working hand-in-hand with entrepreneurs as they build their companies is my favorite aspect of being a VC, and having an engineering background helps me really dig into tech stacks.

For example, many of the 2014 Verizon Powerful Answers Award winners are participating in our accelerator program at BootUp Academy. As an advisor to past winners, I have been fortunate enough to connect frequently with Radiator Labs, which was founded by materials engineer Marshall Cox. He and I like nothing better than to discuss design of experiments (DOE) frameworks. But then we extend those conversations to talk about how to build a business-case for Radiator Labs’ underlying technology.

Every day, we hear about the importance of encouraging more young people to pursue STEM degrees. Hopefully, some of those STEM majors will follow a similar path that I did, one day becoming VCs with hard-core engineering skills. As a VC with an engineering degree, I approach investing with a slightly different bent than someone who has never designed a technical product. I love my job - combining financial and operating skills with technical know-how to help identify and support really great companies. I hope more engineers will contribute their skills to the venture capital ecosystem - spurring innovation with a process-driven approach.

Tags: Engineering , Venture Capital , Daniel Chui , Entrepreneurs , Startup , VC