So you want to work in venture capital. How are you going to make that happen?
Venture capital plays a critical part in the startup ecosystem. Venture capitalists provide the money that allows startups to grow and become successful businesses.
Venture capital firms used to operate in the shadows, but they’ve become more and more popular over the past few years. What used to be a cottage industry has ballooned into a behemoth, and today there are thousands of VC firms investing billions of dollars every year.
Now that the secret is out, everybody wants a venture capital career.
It’s become harder and harder to break into VC. There are more venture capital jobs being posted, but you’re having to compete with more applicants.
How do you break through and start your venture capital career?
In this article, we will explain what venture capital is, how VC firms are structured, describe the role of a venture capitalist, and explain how VC firms make money. We’ll also give you some tips on how to get your first job in venture capital.
What is venture capital?
Venture capital is money used to back entrepreneurs to start and scale their businesses.
The money is sourced from LPs (limited partners) who are typically wealthy individuals or institutions, and it is invested through venture capital funds.
A fund pools money from these LPs, they invest it into high-growth companies in exchange for equity, and they hold this equity in hopes of it becoming worth more money in the future than it is worth today.
Venture capital is not a traditional finance job, and it usually doesn’t require a bunch of number crunching. Investors are seeking technology companies that are aiming to change the way the world operates in ten year. Given the fact that many of these companies have not proven themselves yet, these investors are taking on more risk and investing with less data points compared to traditional finance roles.
Venture capital used to be a niche industry reserved for those deep in the tech world (primarily in San Francisco / Bay Area), but the asset class has grown considerably over the past two decades as more money has flowed into the space. More money has resulted in more interest from people that want to join in on the fun.
How are venture capital funds structured?
Venture capital firms are typically structured as partnerships.
The partners in a venture capital firm are the ones who make investment decisions and manage the fund.
There are different levels of the partnership, and we’ll focus on a few of them to show how priorities are split up within a fund.
The analyst is the entry-level position at a venture capital firm. Like other entry-level positions, they do a lot of the grunt work for the rest of the team. This type of work can include researching companies and industries, writing reports on their findings, and presenting these findings to the partners.
Associates are junior VCs who work closely with senior partners on investments. They also conduct research and due diligence on potential investments.
Principal or Vice President
Principals and Vice Presidents are more experienced than associates but have not yet reached partner level. They lead investments and sit on boards of companies in which the firm has invested.
These titles are pretty interchangeable, and it means the person is somewhere between an associate and a partner.
Partners are the most experienced VCs at a firm. They make investment decisions, sit on boards, and provide advice and mentorship to portfolio companies. They also help with fundraising when it’s necessary, and partners are also entitled to carried interest.
General partners (GPs) are the managing partners of a venture capital firm. They are responsible for fundraising, investing the fund’s money, and managing the other partners.
Why is it difficult to break into VC
Venture capital jobs are hard to come by.
There are less opportunities compared to other industries, and when a new role pops up, loads of qualified applicants apply for the job.
Funds are set up to operate on management fees, and management fees are typically 2% of the overall fund. This means that they have a set budget (sometimes for 7-10 years), and they can’t hire anybody new until that budget changes.
What is the career progression of a venture capital investor?
The typical career progression for an analyst at a VC firm is as follows:
Analyst -> Associate -> Principal -> Partner
It takes to move from analyst and associate roles to senior roles, and the speed of promotion can vary depending on the size of the firm, the fund’s performance, and an individual’s own performance.
For example, an analyst at a large firm might become an associate after two or three years, while an analyst at a small firm might become an associate after just one year.
The path from associate to partner can also take different amounts of time depending on the same factors.
At a large firm, it might take seven to ten years to become a partner, while at a small firm it might take five years.
This is why you see a lot of junior VCs today jump ship to launch their own fund instead of waiting to move up the ranks in their current gig. If you’ve built up a track record through investments sourced, an audience, or other personal connections, it makes more sense to leverage that into becoming a GP instead of playing the waiting game and hoping you become a partner one day at your current fund.
What does the day-to-day of a VC analyst look like?
The day-to-day of an analyst can vary depending on the size of the firm and the stage of the fund.
At early-stage VC firms, analysts might be responsible for talking to startup founders, writing investment memos, and sharing deal flow with other junior partners.
At large late-stage venture capital firms, analysts might be focused on conducting due diligence on potential investments and working with portfolio companies.
We’ve found that at smaller funds, an analyst will wear more hats and will have more responsibilities, and at a larger fund, they will be more focused on sourcing.
Compared to other finance jobs, the work-life balance is a little more balanced, and it is rare to pull an all-nighter. Most of the job can be done async, and most funds work pretty standard work hours.
Not to mention, a hidden benefit of working under wealthy people is that there are multiple periods of the year where pencils go down because the decision makers are OOO.
Pro tip: If you’re servicing or selling software to VCs, do not expect to close new business in July or August since everybody is on vacation.
What makes a good analyst?
Short answer: an ability to make the fund a lot of money.
Long answer: it’s hard to tell.
A few key skills that make a good venture capital analyst:
The ability to find good companies
This is an obvious one since it’s mainly how analysts are evaluated.
Being able to consistently source quality companies and get access to top entrepreneurs is worth its weight in gold, and any analyst that’s able to do this is an asset to their fund.
A large network
This makes it easier to find companies and co-investors.
Networks come in many forms, and each has unique value.
Coming from a school with a deep alumni network of entrepreneurs is valuable. Having an audience through email or Twitter is valuable. Being involved in multiple private communities is valuable.
The larger your network, the larger your chance at being lucky.
Critical thinking ability
This is important for a number of reasons.
You should have your own philosophy of the world – how we got here, what makes people tick, and where we’re heading. This should influence your overall worldview, and that should impact your overall investing strategy.
Knowledge is your greatest advantage, and you want a deep understanding of the areas you invest.
An ability to understand markets and incentives will play in your favor and make it easier to do your job and spot opportunities worth betting on.
Access to wealthy people
This is necessary when it comes time to fundraise.
Fundraising is a numbers game, and if you know more wealthy people, it’s easier for your fund to raise money.
So what does a typical analyst look like in venture capital?
There is no one-size-fits-all answer to this question, as the venture capital industry is filled with people from all sorts of backgrounds.
However, there are a few common denominators that many VCs share.
First, most VCs have a background in investment banking, consulting, or working at a startup. This experience gives them the ability to analyze companies and understand financial statements.
Second, many VCs have a large professional network of people they can call on for advice or help when needed. If you take a survey of 100 VCs, you’ll find that a majority of them come from a small handful of schools (looking at you @Stanford + @Harvard). This isn’t by coincidence, and there’s a reason that more-established funds will offer to pay for business school: your network is your net worth in this game.
Third, and perhaps most importantly, VCs are risk takers. They’re willing to bet on companies and ideas that might fail, but they believe in the potential upside if things go well.
Again, this is not a one-size-fits-all field.
Especially in junior roles, very few candidates come with relevant experience of finding and evaluating early-stage companies.
VCs come from all over, and the more unique your background, the better positioned you are to see the world differently from others (a positive in this field).
How do I get a job in venture capital?
Landing a gig in venture capital may seem like a pipe dream, but it’s more realistic than you think. You have to have a plan through.
This is what I would do if I wanted a venture capital job today.
Define what type of role you’re looking for
What does your dream role look like?
Define location, scope of work, level of experience, title, and anything else you seem relevant.
You can put this into LinkedIn every time you’re browsing jobs, or you can add your preferences to job boards like ours to get alerted when a new job pops up that matches what you’re looking for.
Subscribe to VC jobs newsletters
These types of jobs go quick, and you’ll want to get a job alert as soon as they pop up.
Study everything you can about venture capital
VC is one of the most confusing industries. Even investors with a few years of experience will mix up terms and get confused.
- If you want to learn more about VC lingo, check this out.
- If you want to find interesting companies to learn from and pitch to investors, check this out.
- If you want lessons from 50 VCs, check this out.
- If you want to learn the operating playbook for VC, check this out.
When a job comes open, find the person who posted it, and do something to stand out
Landing a venture role is incredibly competitive. If you don’t want to compete on your resume alone, you can’t applying the same way as everybody else; you’ll need to do something to stand out.
Find the person that posted the role. Figure out everything you can about them. Ping them with something of value and mention you applied to the opening so they remember your name.
I broke into venture by writing ten-page investment memos and sending those to funds that were hiring. I’d tailor the pitch to each fund and let them know why they should invest in a given company.
Do whatever feels right to you, but the more you offer for free before the interview, the easier the actual interview becomes.
The bottom line
Venture capital is a great field to work in especially as a young person.
Compared to most other industries, you’ll get exposed to more information and have more upside opportunities. You get to meet interesting people, talk through different business models and strategies, and learn something new every day.
Lucrative careers like this typically are the most competitive to get into, and venture capital jobs is no different. If you want to break in, you need a plan.
Learn everything you can about venture, figure out what your dream job looks like, get plugged into the right sources to find that opportunity when it comes open, set up a job alert, and go over the top to get yourself in the door.
Repeat this process for a few months and you’re guaranteed to land a venture capital job.
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