Careers in Venture Capital: A Comprehensive Guide

 Careers in Venture Capital: A Comprehensive Guide

contents table

Venture capitalists: What do they do?

What makes venture capital so important?

Job Requirements and Skills for Venture Capital

A Career in Venture Capital

Job Description for a Venture Capital Analyst

Job Description for a Venture Capital Associate or Pre-MBA Associate

Job Description for Senior Associate in Venture Capital or Post-MBA Associate

Job Description for a Venture Capital Principal or VP

Job Description for a Venture Capital Partner or Junior Partner

Job Description for a Managing Director or General Partner in Venture Capital

Pros and Cons of Investment Funding

Positives and Benefits:

Limitations/Inadvantages:

Additional reading

Watching TV programs, movies, and the news makes professions in venture capital look glamorous.

You meet incredible entrepreneurs all day long. examining their companies in great detail... and choosing who will get a seven, eight, or nine figure payment from your company.

Then, you "monitor performance," company leaders do the job, and you are paid when the firm is bought out or goes public.

How might anything go wrong?

You'll discover that the genuine venture capital career path is much more intricate and difficult than the media portrays it to be.

Here, we'll examine the realities of the workplace, including the actual labor, a typical workday, hierarchies and promotions, pay and benefits, and more:

Venture capitalists: What do they do?

Venture capital businesses get assets from limited partners, including family offices, endowments, and pension funds. They then invest in high-growth, early-stage enterprises in return for equity, or ownership in the company.

Subsequently, their objective is to expand these businesses and ultimately make an exit via purchase or initial public offering (IPO).

Although technology and healthcare make up the majority of these high-growth potential firms, some venture capitalists also make investments in cleantech, retail, education, and other sectors.

VCs anticipate the majority of their investments to fail since the risks are so high.

However, even if all of the businesses in their portfolio fail, they stand to gain enormous profits if they discover the next Facebook, Google, or Uber.

Venture capitalists use their time on securing funding, identifying companies to invest in, settling on terms of deals, and assisting firms in expanding.

The task may be split up into these six categories:

Locating fresh businesses for funding and early access is known as sourcing.

transaction execution involves researching possible startup investments, evaluating their markets and financial forecasts, and settling on the terms of the transaction.

Support for portfolio firms: Assisting portfolio companies with all aspects of their operations, including hiring, marketing, sales, engineering, fundraising, and administrative and financial concerns.

Attending conferences and events, creating material online, and interacting with other professionals in the field—such as bankers and attorneys who assist startups—are all part of networking and brand-building.

Finding new investors for upcoming funds, reporting to current Limited Partners (LPs), and assisting the company in generating new funds are all part of fundraising and LP relations.

Internal operations and other functions: These include administrative tasks including hiring for positions in IT, accounting/legal, investor relations, and other fields, as well as enhancing internal reporting and transaction monitoring.

The top three jobs on this list are where most venture capitalists focus their efforts: sourcing, transaction execution, and portfolio company assistance.

Senior VCs, like Partners, devote more of their time to assisting the portfolio firm, while junior VCs, like Analysts and Associates, focus more of their time on transaction execution and sourcing.

What makes venture capital so important?

Venture capital is a "get rich slowly" kind of employment where future returns might be decades away.

Look elsewhere if your sole objective is to get wealthy or climb the social ladder as fast as feasible.

Compensation in investment banking, private equity, and hedge funds is far higher than salaries and bonuses, and partner-track jobs are seldom attained by junior-level employees.

Compared to typical IB and PE jobs, the technical work is far less complicated, and you spend more time on qualitative duties like research, meetings, and brand-building.

Targeting junior-level venture capital employment makes perfect sense if you have a strong interest in startups and want to take the opportunity to learn, build your network, and eventually use this experience to get additional startup-related opportunities. desire.

Senior-level venture capital positions are distinct; in these positions, the work is the ultimate goal, and you may aim for them after gaining substantial experience in executive capacities at bigger firms or startups.

Job Requirements and Skills for Venture Capital

Depending on your degree of entry into the sector, different skill sets and levels of expertise are needed.

The primary points of entry are:

Pre-MBA: After completing your education, you spent a few years working in investment banking, management consulting, or as a business development, sales, or product manager at a startup. You may be able to leave F University right away under certain circumstances.

Post-MBA: You attended a prestigious business school after studying engineering at an enterprise software firm or sales. It required several years to get experience in technology, healthcare, or finance.

Senior Level/Partner: Either you were a high-level executive (VP or C-level) at a large business that serves the VC's target industry, or you created and successfully exited a startup.

You may also finish a PhD in life sciences venture finance, particularly early stage funds. Enter the sector by pursuing a career in biology or chemistry, since these fields need a deep understanding of science.

Those with a strong sense of love for startups, excellent communication skills, and an understanding of both the technical aspects of the product and the market are highly sought after by venture capital firms.

While early-stage companies are more interested in your abilities to network, get meetings, and identify prospective businesses, late-stage and growth equity firms are more interested in transaction execution and financial analysis skills, such as those you could develop in IB and PE jobs. more concerned about. ,

Your worth as a senior executive is entirely dependent on your Rolodex: are you able to use your network to identify exceptional, promising prospects and then assist portfolio firms in becoming success stories?

See our piece on how to get into venture capital for further details on hiring and interviewing practices.

A Career in Venture Capital

Sure, we'll provide you with the "career path" graphic that we like to utilize for these pieces.

However, keep in mind that venture capital companies' organizational structures differ significantly from one another, making job titles and levels less standardized than those in investment banking or private equity.

For instance, whereas some businesses have complex hierarchies, others are rather flat, with only partners and administrative personnel.

Certain firms merge the jobs of analyst and associate, while others keep the responsibilities of principal and vice president distinct.

Then, although some businesses only have one level that corresponds to the term "Partner," others have two, three, or even more levels.

This is how the overall hierarchy appears:

Analyst: Research ape and number cruncher.

Sourcing, Deal, and Portfolio Monkey are the pre-MBA associate roles.

Sr. Associate or Post-MBA: Trainee for Partners and Principals.

VP or Principal: A training partner.

A general partner in training is called a partner or junior partner.

Senior or general partners serve as the firm's spokesperson and decision-maker.

Similar to private equity, venture capital remuneration is comprised of carry (sometimes known as "interest"), year-end bonuses, and basic salary.

Base pay and bonuses are derived from management fees that the firm levies, which amount to 2% of the $500 million in assets under management. Carry, on the other hand, is a portion of the company's annual investment gains.

As an example, suppose five years ago a venture capital firm invested $5 million for a 25% share in a business.

Without any further fundraising rounds or any reductions, the investment profit from this year's $100 million sale of the firm is equal to $100 million * 25% - $5 million, or $20 million.

A 20% profit margin means that the venture capital firm's "carry" will be 20% * $20 million = $4 million, with the majority going to the general partners.

The restricted partners will get the remaining sixteen million dollars.

Don't get your expectations up; the carry in venture capital positions is considerably "lumpy" compared to the carry in private equity roles, particularly because most VC businesses do badly.

Job Description for a Venture Capital Analyst

Analysts are employed as soon as they graduate.

This position is uncommon, particularly in life sciences venture capital, and is usually not a strong fit when compared to more conventional possibilities like corporate finance employment, consulting, and careers as investment banking analysts.

You'll be doing a lot of industry research, data crunching, and support work in this capacity, such assisting Associates with internal procedures and due diligence.

Although you may pick up some knowledge of financial and market research, you don't manage transactions in the same manner as Associates and Principals, and although you help with sourcing, businesses seldom come to you first. Will occur.

The analyst function is more of a "training" one, and most analysts leave the business after a few years to take an Associate position at another firm, join a portfolio company, or finish their MBA.

While internal promotions to the Associate level do occur, they are less frequent than the corresponding promotions in investment banking for analysts.

Age bracket: 22–25

Compensation + Bonus + Carry: The average range of total earnings is between $60K and $100K.

Carrying is not even an option; it is not happening at this stage.

Two to three years, assuming your organization engages in this kind of promotion.

Job Description for a Venture Capital Associate or Pre-MBA Associate

After working for a few years in a similar field such as investment banking, management consulting, product management, sales, or business development, you may then apply for the Pre-MBA Associate position.

In contrast, later-stage companies complete fewer transactions and source more associates than early-stage venture capital firms.

Associates serve as first-line sifters, identifying and pre-qualifying the top companies before recommending them to partners and principals.

After a few years, pre-MBA associates usually leave to take up a career in another area of business or finance inside the MBA, a portfolio firm, or a technology or healthcare organization.

A Tech VC Associate's typical workday would be something like this:

Morning: Read up on industry and news happenings, reach out to a few intriguing firms, and look over a draft deal for the Series A round that your business is now negotiating.

Have lunch with a buddy who practices law and is interested in gaining new clients for your firm. Talk about the startups that his legal company has lately dealt with.

Early in the afternoon: Schedule meetings with a few promising firms to discuss possible investments. Take a close look at their financial and market predictions, taking into consideration ideas such as yearly recurring revenue and SaaS accounting.

Late afternoon: React to a "crisis mode" portfolio firm by presenting them to a marketing agency that can boost their conversion rates and sales funnel, as well as turn some of their campaigns into lucrative ventures.

Evening: Go to a startup gathering for artificial intelligence and machine learning to network, present your company, and identify potential clients.

Venture capital is far from a 9–5 career; even while you spend 50–60 hours a week in the office, you still have a lot of work to perform outside of it.

You're "always on" with this job outside the office, therefore you must love a startup. It could be more enjoyable than the shit you do in IB.

Age bracket: 24-28

Pay + Bonus + Carry: At this level, total remuneration is probably between $150K and $200K.

The likelihood of carry is quite minimal, unless you are joining a fresh venture capital business, in which case your base pay plus bonus will also be lower.

Promotion time: N/A Since you normally don't get promoted beyond this point and require an MBA or a lot more job experience to go forward in venture capital, you can't progress above this point.

It can take three to four years to get to the Senior Associate level if your organization really supports Pre-MBA Associates.

Job Description for Senior Associate in Venture Capital or Post-MBA Associate

The Associate or "Senior Associate" post at most venture capital companies is a partner-track role after an MBA.

As the name implies, you get the job after graduating from a prestigious MBA program (preferably at Stanford or Harvard) or, in very unusual circumstances, by a straight promotion.

Senior associates and VCs in the biological sciences sometimes have doctorates (Ph.D., M.D., etc.) and are highly knowledgeable in research but lack expertise in business or finance.

Though post-MBA Associates have greater influence over principals and partners and function as "firm representatives" in more circumstances, their day-to-day job is not all that different from that of pre-MBA Associates.

Pre-MBA and post-MBA Associates do not serve on corporate boards; but, post-MBA Associates are more likely to be "board observers".

Post-MBA Associates help the proprietors and partners by acting as their apprentices and proving to them that they are capable of seeing uncommon chances that might be advantageous to the company.

After earning an MBA, associates who are not promoted may be forced to quit and look for work in the industry in finance or product management at a portfolio business.

Age bracket: 28–30

Pay + Bonus + Carry: This will likely result in a total payout of between $200K and $250K.

At this point, you may make some money, but it won't compare well to the principal's and partners' profits, and it won't be helpful until you stay with the company for a very long time.

Time for promotion: two to three years

Job Description for a Venture Capital Principal or VP

A "partner in training" is the principal or vice president.

They need to have in-depth knowledge of the firm as well as the technology/science supporting the business case, since they are usually the most senior members of the investment team who are actively engaged in transaction execution and contract negotiations.

The ultimate choice about investments cannot be made by the principals, even if they "run the deals".

They deal more with portfolio firms that are already established and sit on boards, in contrast to Associates.

The majority of the time, post-MBA associates are promoted straight into this position, although sometimes, business development, sales, or product management experts from the sector may join.

It may only take three to five years of industry experience if you have an MBA; it can take seven to ten years without one.

Principals must show they can provide enough value to the partners to make up for giving up a portion of their revenues in order to go forward.

"Add substantial value" refers to enhancing troubled portfolios or bringing in special opportunities that partners would not have otherwise seen. rescuing businesses and achieving success with them.

Age bracket: 30-35

Pay + Bonus + Carry: The possible total remuneration might be between $250K and $400K.

At this level, you will get carry, but much less than what partners receive.

Time for promotion: three to five years

Go here to learn more about the fundamentals of venture capital.

Job Description for a Venture Capital Partner or Junior Partner

Senior-level partners and junior-level partners are distinguished in many venture capital companies.

We're going to use "Junior Partner" for the junior version and "General Partner" for the senior version since the names are confusing.

Although internal promotions from principals to junior partners are common, successful entrepreneurs and business leaders are also sometimes elevated to this position.

With regard to duties and pay, junior partners fall between principal and general partner (GP).

They are not as effective as GPs, but they are not as engaged in the implementation of deals as principals are.

Additionally, while not as much as GPs, they are more active with boards, portfolio businesses, and LPs.

While junior partners may review agreements on occasion, they do not have the ultimate say over whether investments are allowed, in contrast to general partners.

Age range: thirty-three to forty

Pay + Bonus + Carry: Your total pay will probably fall between $400K and $600K.

Although you will earn carries, the GP will still get the most of it.

Time for promotion: three to five years

Job Description for a Managing Director or General Partner in Venture Capital

General Partners have a proven track record of success as executives or entrepreneurs, or they have a lengthy history in venture capital and have been elevated to this position.

To get here, they don't have to discover the next Facebook or Google; a history of "solid base hits" rather than home runs or grand slams may be sufficient.

GPs often concentrate on the following duties rather than sourcing or transaction execution:

Fundraising: They gather funds, treat the LPs to a meal, and persuade them to increase their investment.

Public relations: By giving speeches at conferences and to media outlets, they represent their company.

Final investment choices: The GP gets the last word in all matters of investing. Even if they don't do thorough research, they perform a last "gut check."

GPs have board seats as well, albeit sometimes they participate less than junior partners or principals.

Human resources: GPs have the last say in choices about internal promotions and hiring and firing.

Significant portions of the capital of general partners are also contributed to the fund so they may "stay active in the game."

This indicates that carries, which aren't always a fantastic option, account for the majority of the earnings in this function.

Age Range: 36+ (VCs are less likely to retire than bankers since their work is less demanding)

Salary + Bonus + Carry: Depending on the size of the company, performance, and other criteria, the total remuneration will probably fall between $500K and $2 million.

Depending on the year and business performance, carry may possibly quadruple that remuneration or result in a total of $0.

The pay for general practitioners is not as great or risk-free as it would seem since they have to deposit a sizeable amount of their net assets to the fund.

You've arrived at the pinnacle of promotion time.

Pros and Cons of Investment Funding

In summary, the following is a way for you to weigh the benefits and drawbacks of working for venture capital:

Positives and Benefits:

Rather than editing pitch books or choosing font widths, you get to work on fascinating projects and network with intelligent, driven investors and entrepreneurs.

Compared to IB, PE, or HF employment, VC jobs have a much better work/life balance and involve less last-minute deal maneuvers.

At every level, your pay and bonuses exceed those of most "normal jobs."

Venture capital, as opposed to typical financial disciplines, allows you to invest startups that have the potential to transform industries or even save lives.

Since the sector depends on interpersonal ties and evaluates investment success over years or decades, it is unlikely to be challenged.

Limitations/Inadvantages:

It's incredibly hard to become a partner, or even to set yourself on the route to one; venture capital is usually a better place to end your career than to start it.

Saying "no" to startups and dealing with portfolio firms that are failing takes a lot of effort, and it might take seven or more years to evaluate your effectiveness.

Although there is more work-life balance than in IB, there is also more work-life isolation since you are always in "networking mode" and friends and acquaintances approach you with business referrals and pitches as soon as they find out you work in venture capital. Will initiate contact.

While exit possibilities can occur, they are less common than those provided by private equity or investment banking since venture capital often leads to additional venture capital or operational responsibilities within certain sectors.

Finally, until you reach the GP level and work for a top-performing company that routinely outperforms others, you IB will make much less money than PE and HF jobs.

Are jobs in venture capital thus a good fit for you?

This is a question I asked myself many years ago when I was thinking about changing careers and working in investment banking.

On paper, I had the perfect background for a venture capitalist: investment banking, computer science from a top institution, and some small company management experience.

But I decided to say "no" for a few of the previously listed reasons. Most significantly, compared to a direct IB exit possibility, it felt like a better career choice 15-20 years in the future.

Moreover, VCs did not make use of my skill set, which includes web marketing and content creation, except in indirect ways.

However, the answer may be "yes" for you if you are a better fit or much older than I am.