So, you want to be a venture capitalist, eh? Why not? It just sounds cool, right? Imagine you’re at a typical Silicon Valley meet-up or in your social circle – usually, everyone around you is an “engineer” but you respond with, “I’m a VC!” All of a sudden, you’ve just moved up their speed dial and your personal stock skyrockets because you have everyone’s attention! Look at some of the perks associated with being a VC: you have the potential of doing well financially; you can meet some of the brightest minds with amazing ideas that are about to change the world; you can become part of that elite Silicon Valley (and now Silicon Alley, NYC) group like Jim Breyer, Ron Conway, John Doerr and Fred Wilson; you can ‘get in the know’ about what’s happening, and most importantly, be a part of something that can change the entire landscape of how we technologically live our lives! After hearing all of this, the question could easily change from “why do you want to be a VC?” to “why would you not want to be a VC?”, right? Ready to sign up? Slow your roll homeboy… it’s not as easy as you think!
Take it from me – becoming a VC or even entering venture capital as a career itself can prove to be a tremendous challenge! When I was learning about the industry before taking the proverbial plunge, I reached out to many VCs – some of whom were friends and others who were not. Starting with my friends, I asked, “How do I become a VC?” and the first response I got was “Why?”. Then, I was told, “I think you’d have an easier time making it onto an NFL team!” And remember… these were my friends! For those who were not known to me, it was rare that I even received a response back at all. If by the off chance I did receive a response, it was the typical “I’m really busy right now…” In my experience, very few people even talked to me about the industry and for those of you who did, I sincerely thank you! For those of you who didn’t, I look forward to our future conversations. Moving on, I was finally educated as to the paths to becoming a VC (or obtaining a career in a VC firm).
Typically, there are three paths to becoming a VC:
- Start a venture capital firm yourself.
- Become an EIR (entrepreneur-in-residence) where an entrepreneur gets funded by a VC, delivers a successful exit, and then returns to the VC firm as an EIR to help examine new opportunities.
- Go the Associate route by getting hired, possibly out of school, and slog your way through the process and hope you can hang on for the ride.
Let’s examine each one of these in a bit more detail…
Starting a venture capital firm yourself
Sounds pretty straightforward… come up with a cool company name, form your corporate structure (e.g. LLC/LLP), raise a fund, and start investing. Wait – raise a fund? That’s right – after all, where are you going to get the money needed to invest in the brightest minds with amazing ideas? Assuming you even get a meeting, you need to go to institutional investors, pension funds, and possibly wealthy individuals and convince them to give you millions of dollars. Furthermore, sell them on the idea that despite not having any real experience or proven track record in the field or even possibly never having had any fiduciary responsibility of any kind, that you will enhance their portfolio because you can do “me too” better than the other guy! Beyond this – today’s economic climate doesn’t bode well for raising new venture money. With pension funds, endowments, institutional investors, and wealthy individuals still recovering from the sub-prime beat down, fund sizes are much smaller than the “dot com” boom. Below is a graph from the NVCA showing capital commitment trends for venture funds.
Another fairly simple route… come up with a great idea or technology that the world won’t be able to do without, get a VC to fund you, generate tons of traction (hopefully in the form of revenue), deliver a successful IPO (or get acquired), and make a ton of money for yourself and the VC. What’s the big deal? Just one tiny requirement… come up with that great idea or technology that’s going to change the world. If you can do all this, you might be offered an EIR-gig… that is, if you still want to work considering all the money you just made?
Notice anything interesting about the word “Associate”? How about the first few characters of the word? That’s right… ASS. VC’s don’t publish jobs so if you do find a way in via the associate route just know that you’re going have to work your ass off in order to survive through the process. Understand the venture business, sharpen your domain knowledge to make solid recommendations on investments, and be able to defend your position. Oh… and a PhD from a great school can’t hurt.
We’ll wrap up this blog post for now with the hope that you have a better understanding of the paths available towards entering the VC realm. In Part 2 of our post, we’ll examine alternatives to becoming a traditional VC.