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May 29, 2005
VC Adventure: How to become a venture capitalist
VC Adventure: How to become a venture capitalist
[As a VC, you get asked alot about how to become a VC. I’ve given talks on the subject and have lot’s of opinions on this topic but Seth Levine’s post is the best summary I seen which strikes a perfect balance between the “bleak realities” and (if still undeterred) “approprate next steps.”
His post is a must read for “wannabe VCs” … I’ve copied it here in it’s entirety but definitely read the original as the comments are also excellent — cgm]
May 20, 2005
How to become a venture capitalist
I get asked this question a lot and while the real answer is “I have absolutely no idea,” I thought I’d make something up here so I at least have a place to send people who ask me this question (as well as anyone else who happens to stumble upon this blog searching for ‘getting a job at a venture capital firm’). This post is for aspiring analysts, associates and principals and has little to do with getting a job as a partner (which I hope to figure out one day too . . .)
Step one: Assume you will not be able to land a job as a venture capitalist. This is the realistic outcome of trying to get a job as a VC. I imagine the market is a little bit better in places like Palo Alto, but here in Denver I can count on one hand the number of VC jobs that have opened up since I joined Mobius in 2001. Only a couple (I’m thinking about 2 at the moment, but there may be a few others) actually went to people who weren’t already in the industry. Even in larger VC markets (specifically the Bay Area and Boston) there are many more people who are actively looking to get into the VC world than there are positions open.
Step two: Understand the math. It’s critical to understand how VC’s make money and therefore the fundamental request you are making when asking for a job as a VC. Venture capitalists make money in two ways – from management fees (a percentage of funds under management) and from carry (a percentage of the return on investment). The partners of the fund use the management fee to pay the expenses of running the business (office space, technical infrastructure, travel, support, etc.) and then pay themselves with what’s left over. As a non-partner you are fundamentally a cost center. The partners are quite literally taking money out of their own pockets and giving it to you. Rationally, they will only do this for one of two reasons – either you are significantly impacting their lives in a positive way that makes the trade-off worthwhile for them (you cost less than the marginal life benefit they get from having you around) and/or you will help create more carry (i.e., they can manage more deals with you around and therefore deploy more capital; you have a skill set that will positively affects the portfolio, etc.). If you fail to do these things you are just eating up management fees. There is a grey area here for Principals (called VP’s or SVP’s at some shops, junior partners at others) who are managing their own deals as well as supporting partners’ deals.
Step three: Get close to VC’s. The road to becoming a VC follows many different paths, but fundamentally your first step in landing a VC gig is likely to be figuring out who the VCs are in your area and trying to get close to them. If you’re still in college, consider a job in an investment bank or other financial services firm (even VC analyst jobs are hard to come by straight out of college – VCs tend to hire people with at least some financial training at those levels) to get the best possible training for an entry level job in VC. If you are in business school, look for internships that will allow you to meet venture capitalists (either at a VC directly or for a portfolio company of a VC). If you don’t fit any of those categories, take a job at a company backed by venture money and try to get exposure to the venture capitalists on the company’s board. In short do what you can to get to know VCs in your area so that when a position opens up you can be both top of mind and a known commodity. Take a longer term view of your approach and remember that many VCs got there not by following a traditional path (banking --> b-school --> VC) but have years of operating experience, were entrepreneurs themselves, or were somehow else involved in the business of building and growing companies.
Step four. Be smart about networking. I’m writing a separate post on the subject of smart networking, but suffice it to say here that you should put some thought in how you use your network to meet VCs. Figure out who you know who also knows VCs that you’d like to meet and play the network game as best you can. It can take a long long time to get meetings set up – be patient about it (Brad probably doesn’t remember this, but when I was first introduced to him in what was a very ‘hot’ introduction from someone who he trusted a lot and who had worked very closely with me, it took three months to actually get in to see him <g>).
Step five: Don’t get discouraged. If you remember back to step one, you weren’t going to be successful getting a job in VC in the first place, so all the progress you are making is gravy, right?!?
Posted by cmayaud at 02:55 PM | Permalink| Comments (3)
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Comments
Great Information for anyone interested in the gray area where a lot of money and fun can be found.
Personally, I had a mentor. One day while working toward my CA with Clarkson Gordon, Now Arthur Anderson, I was standing on the street corner of Kng & Bay in downtown Toronto. I was with at least 6 other guys going for lunch. They all saw this Autin Martin and were so impressed, so without thinking, I just knocked on the car window and asked the guy inside who looked like Robert Redford, "What do you do to drive a car like this?" He said, "Do you want to have lunch?" The rest is history. He was a VC and ran his own company and his own deals. He hired me that day and doubled my salary, and the next day I was on a plane to Houston Texas to find out if his partners there were ripping him off. Needless to say that's how I came right out of school. And the Job at the accounting firm is another story of how to get hired by the most prestigeous firm without an interview or a connection. My advice to those who want to be is not to be. It's something that you already have in side of you; and the skill set is there too. All you need to do is to keep knocking on car windows to land the job and then from there you'll never look back. My friends are still accountants and I have experienced people, places and things that would make your head spin and in the end you find out what your made of. It's definitly a business not for the faint of heart. If you want to seek my counsel on this inclluding the the poster of this article, I will be glad to disense my knowledge and I can quarantee you that even though my life at any moment may not make any sense at all, in the arc of my life it is a most exciting and rewarding life. Yes I can make money for anyone, but make it for myself and keep it, well that's another story.
Posted by: Michael Pokocky at May 30, 2005 10:12 AM
The best way to get a job in VC is to found or join early a startup and make it successful. Forget trying to find a job as an analyst or associate if you haven't done this. Chances are that you won't make partner, or even be promoted to Principal. And they will likely can you after a couple of years.
On the other hand, leading a startup to success (via IPO, Merger or Acquisitioni), which is defined in my book as a net gain (for yourself) of $1.0 million or more, will allow you to become your own VC ("angel investor"), and not even need to join a firm. But they will be after you anyone, and if not at first, through investing as an angel, you will get close to them.
If you can't build a company or don't want to do this, then don't join the industry. We entrepreneurs need investors with operational experience and a track record on our board, not dimwits or Wall Street finance guys.
Posted by: Michael Clouser at June 25, 2005 01:15 PM
The best way to get a job in VC is to found or join early a startup and make it successful. Forget trying to find a job as an analyst or associate if you haven't done this. Chances are that you won't make partner, or even be promoted to Principal. And they will likely can you after a couple of years.
On the other hand, leading a startup to success (via IPO, Merger or Acquisitioni), which is defined in my book as a net gain (for yourself) of $1.0 million or more, will allow you to become your own VC ("angel investor"), and not even need to join a firm. But they will be after you anyone, and if not at first, through investing as an angel, you will get close to them.
If you can't build a company or don't want to do this, then don't join the industry. We entrepreneurs need investors with operational experience and a track record on our board, not dimwits or Wall Street finance guys.
Posted by: Michael Clouser at June 25, 2005 01:15 PM
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