What really separates venture capitalists from the rest of us?

I’ve been dealing with VCs for a long time, including my time as one of them. I’ve lost count of the number of meetings I’ve had and the thousands of emails (and dollars) I’ve exchanged with them over the years.

Last week someone asked me what I think about VCs. She wanted to know if I thought they were really smart, just lucky or absolutely clueless. Here’s what I told her:

They know what they know, and not much else. Most of the VCs I’ve worked with would fail an undergraduate exam on emerging technologies, regardless of how amazingly articulate and affable they might be. I remember VCs I worked with in the late 1990s that had absolutely no clue about how the internet actually worked or any insight at all about the technology that powered the web, or the business models that the web enabled. Since most VCs come from banking, finance, mergers, acquisitions and related industries, they really don’t understand much about retail, insurance, manufacturing or aerospace, among other industries.

Related: When to Say No to Venture Capital

So what do they know? Deal terms, valuation, investor rights. All that stuff. They’re really good at modifying deal terms. They’re good at employment agreements. They understand cap tables even when they’re drunk, and can dissect -- and challenge -- revenue projections in their sleep.

It's not who you know. It's who they know. Most of the success that VCs enjoy is due to their relationships. Who they invest with, the entrepreneurs they back and the lawyers and investment bankers they hire explain much more about their success than their technical knowledge, experience or natural luck. If you look at the most successful VCs, you will almost always see repeat performers in their portfolios. They go to the same wells over and over again. Most of their success is the result of who they know, not what they know or do.

A VC always wins. When VCs fail, they still get huge salaries and management fees, fly private jets and take elaborate vacations disguised as deal flow expeditions. When their investments are successful, they get huge salaries and management fees, fly private jets, take elaborate vacations disguised as deal flow expeditions and get “carried interest,” a percent of the profits from their investments. The traditional 80/20 split (after huge salaries and fees, of course) makes a lot of “lucky” VCs very, very rich.

VCs get paid really well regardless of how well they perform (with other people’s money). Many of them -- and maybe even you -- will say that if a fund fails to return meaningful returns to its investors, VCs will have a hard time raising another fund. But the facts suggest otherwise. Actually, this all sounds pretty damn smart to me. In fact, the VC business model is absolutely brilliant -- for VCs.

Related: Does Your Team Have the Right Stuff to Attract Venture Capital?

If you’re an entrepreneur looking for an investment, or an investor looking to make some money, what should you look for in a VCs? Here are five rank-ordered areas to assess:

1. Relationships. Who does the VC know, invest, work, travel and win with? Look for relationship pedigrees that include major law firms, successful entrepreneurial testimonials and happy institutional investors.

2. Performance. While VCs win whether they succeed or fail, you need to know what the empirical record actually shows, not lore or hearsay, but actual results, like the internal rate of return of each and every fund they’ve raised and the carried interest that investors actually received. Take no prisoners here: this is the most important due diligence you will ever do.

3. Advocacy. Assess the firm’s orientation -- is it an entrepreneur-friendly firm or a firm that’s focused primarily on its investors? There are strengths and weaknesses with each bias, but remember that entrepreneur-friendly firms have better deal flow than firms that have investor biases.

4. Knowledge. While many VCs are not rocket scientists, they should also know enough about themselves to know what they don’t know. There is no more deadly combination than arrogance and stupidity -- if you see this combination, run for the hills.

5. Professional integrity. It’s important to calibrate the integrity and ethics that define your VC firm. If you’re wondering why “professional integrity” is last on my rank-ordered list, it’s not that professional integrity isn’t important, it’s just that the other four areas are more important. This will tell you everything you really need to know about VCs.

Good “luck.”