Back to VC 101

NextGen Partners has a membership base of over 500 pre-partner professionals representing over 200 firms in California. We surveyed our membership for their best tips on getting into venture capital in order to compile this FAQ.

What’s the best way to break into venture capital?

Develop your Network

When interacting with a potential employer, demonstrate that you have spent time building your network in the entrepreneurial and startup ecosystem. Venture Capitalists rely heavily on their networks to stay relevant in their particular sector and to ensure that they are interacting with the most promising entrepreneurs and companies. They will be looking to add people to their team who have focused on this core competency.

There are a number of ways to expand your network:

  1. Attend startup events, demo days, mixers, etc.An easy way to find these events is to search on Eventbrite or MeetUp (a lot of events are free and only require registration!)
  2. Attend industry specific conferencesBuilding out particular sector expertise can help differentiate you from other candidates
  3. Reach out to VCsThis is best done when you have developed a familiarity with a sector and can provide deal flow or chat about an interesting market thesis

Demonstrate your Interest

Most venture capitalists are inherently curious about new trends and technologies and they enjoy interacting with entrepreneurs, investors and other curious people to uncover investment opportunities. Show a potential employer that you exhibit similar qualities by staying on top of venture deals and trends.

There are several resources you can use to stay informed:

  1. VC Blogs: A number of VCs, such as Brad Feld, Mark Suster and Fred Wilson, publish advice for entrepreneurs / investors and provide commentary on deals and trends in the industry
  2. Industry-specific Press / Publications: TechCrunch, VentureBeat, The Verge and others maintain a good record of VC activity
  3. VC Newsletters: Dan Primack’s Term Sheet, Connie Loizos’ StrictlyVC and CrunchBase Daily are newsletters that summarize daily or weekly venture activity

Understand your Role

It is important to understand what a potential employer will expect of you. This can vary significantly by fund, so ask around about a particular firm’s approach to investment professional staffing. Generally, later-stage and growth equity firms place a have a heavier focus on deal support (due diligence and financial modeling) while earlier-stage firms tend to emphasize portfolio company work.

There is also a pretty wide range of expectations for the level of sourcing you will be doing. Almost all firms require investment professionals to actively source new opportunities and help build theses around particular companies and industries. However, certain funds may skew more heavily towards cold-calling, while others tend to rely more on focused sourcing that leverages the senior partnership’s network.

What prior experience is most common in venture?

While there are several paths to venture, there are certain types of prior work experience that are more common than others among venture capitalist resumes.

Most VC’s typically have been involved in one of the following:

  • Entrepreneurship
  • Strategy consulting
  • Investment banking
  • Product related role at a major platform (Google, Amazon, Facebook, Apple) or fast growing startup

What’s a typical entry level role?

The two most common entry-level positions in venture are pre-MBA Associate and Senior Associate / VP / Principal (typically post-MBA/post-experience roles).

  1. Pre-MBA Associate – At most venture firms, pre-MBA associate roles are a two year commitment with a potential for a one year extension (the extension is typically dependent on staffing needs and performance). After the program is complete, associates usually go to business school, join a startup or join another venture firm (often one that is focused on earlier stage investments).Pre-MBA associate openings are typically filled with the help of a recruiting firm (such as Glocap); however, leveraging your professional network to get a direct intro to a firm can sometimes be more effective. Some funds will even post openings on their website directly and will rely on network referrals to fill a spot on the investment team.
  2. Senior Associate / VP / Principal – Post-MBA, or post-experience, roles are generally part of a path to partner – though promotion will depend on a candidate’s skills, fit with the team and succession planning within individual funds. Pre-partner roles are often rewarded with some carry but it will probably not be significant.Business school can be a great launch pad into VC. Top business schools regularly admit and graduate successful venture investors and venture-backed entrepreneurs. Additionally, business school students often have a chance to interact with alumni in the venture community through various startup case competitions and VC internship programs on campus.While earning your MBA can be helpful, it is by no means a guaranteed ticket into VC. Alternative ‘academic’ options certainly exist, such as the Kauffman Fellows program.

What do you like about venture capital?

Here’s a great one liner from one of our NextGen members:

I like the futurist thinking–thinking about what will be important 5-10 years out, and acting on it today. I also like the people – entrepreneurs who are crazy and passionate, and investors who are idiosyncratic and fun. I also like being helpful to entrepreneurs – seeing my impact on their progress.

No two days are alike and a VC gets to work with highly motivated entrepreneurs at the forefront of their industry. Gaining a perspective as a generalist and then being able to develop particular sector expertise are also appealing parts of the role. When you are acting as a deal flow hub, you can gain a good overview of the tech landscape, generate educated opinions on where an industry is headed and assess where opportunities and risks may lie in a competitive landscape.

Common highlights of the role also include the flexible hours and generous compensation. Additionally, it is also a very social role. Over the course of a VC’s career they will develop relationships with a wide range of highly talented and passionate entrepreneurs, industry leaders and influential investors.

What do you dislike?

A VC’s role is to act as a coach, cheering on from the sidelines, not a player – this can be a downside for some particularly entrepreneurial investors. Certain funds prefer investment professionals to develop a generalist industry skill set which can mean that it is more difficult to develop depth and operating experience within particular industries. Similarly, the skills developed within VC are not always concrete or immediately transferrable to a wide range of other industries.

Also, those seeking instant gratification will probably be disappointed – the typical holding period for an investment is five to seven years (the time it takes to reach a liquidity event).

Finally, a career in venture can feel isolating as it involves working in small partnerships and independently sourcing and managing investments.

What are some common misconceptions of VC roles?

The most common misconception is that being a VC is a path to quick riches off the back of a Facebook or Google type exit. While those kinds of exceptional investments can return great carry profits to a fund, outlier returns can take the better part of a decade to manifest.

Furthermore, profit splits and carry compensation to non-partner level staff across most funds indicate that a junior VC is unlikely to generate significant upside from an outsized return.

Job duties are also commonly misunderstood. Generating strong deal flow and sifting through hundreds of pitches a week is hard work. Although VCs are not tied to their desk for as long as bankers and consultants, VCs are expected to be ‘available’ all the time and ‘free time’ is often spent on work related activities (networking, thesis generation, etc.).

Another misconception is that you will get good training. While this is true, training is not carried out in the same structured way as is the case in other industries. VC is an apprenticeship business and skills are developed over time. Every investment will teach you something different – transaction structuring, operating insights, and negotiating tactics are a few examples.

Any other advice?

Patience is essential – Successful applicants usually build a relationship with the venture funds they eventually join over a period of time.

A prime VC candidate is:

  • Motivated
  • A self-starter
  • Passionate about technology (or whatever sector you will be focusing on)
  • Can thrive in an unstructured environment.

Bankers and consultants looking to break into venture sometimes struggle to find time to build a strong network. In these cases, it is especially important to remain close to friends at venture backed startups and peers who left to make the jump to venture previously.

Tapping into your undergraduate alumni network for introductions can be helpful, but make sure to be fully informed of the sectors you’re interested in, reasons for wanting to join VC, etc. before you do this, as a first impression is important and burning bridges with alumni early on will come back to haunt you later in your career.

Time is the asset in shortest supply with investors and wasting it will not bode well. In addition to reading through these FAQ’s, make sure to not ask generic questions that any number of venture blogs, tech press, or even Quora could have answered.

How do venture funds work, and how are returns generated?

VC funds are best understood by understanding the flow of capital:

  • General Partner: the venture investment professionals and firm itself
  • Limited Partner: endowments, pension funds, high net worth individuals, strategic corporations that provide the capital invested by the General Partner

GP’s typically generate fees based upon a ‘2 and 20’ split.

  • 2% management fees charged annually against total fund size to pay for salaries, rent, office running costs, etc.
  • 20% carry refers to carried interest. This is the 20% share of the profits that the VC generates and the real source of wealth creation in the business.