What is Venture Captial?
Venture Capital firms (also referred to as VCs) raise capital from limited partners, such as pension funds, endowments, and family offices. With this capital, they invest in (early-stage) high-growth companies - with most of these companies being in the technology sector.
The aim of venture capital firms is to participate in the growth of their portfolio companies and eventually sell their stake - at a much higher valuation - via acquisitions or initial public offerings (IPOs). Venture capital firms are aware of the high risks involved and go in with the expectation that the majority of their investments will fail. In fact, the reputations of prominent venture capital firms are often built on only one or two good investments.
For venture capital firms, it’s the excitement and possibility of finding the next Google, Facebook, or Whatsapp that keeps them going - investing in the right startup could result in exceptional overall returns even if the majority of their portfolio companies fail (Sequoia Capital reportedly turned its $60M investment into Whatsapp into $3B).
What do Venture Capitalists do?
There’s more to being a venture capitalist than just meeting founders for coffees, signing papers, and handing out cheques. The opportunity to help inspiring and driven entrepreneurs propel their businesses is what draws so many individuals to this field.
Most venture capital firms are typically small in size (around ten people), with most professionals working on the investment team. Hierarchical structures differ from fund to fund, but it usually looks similar to this:
Analyst > Associate > Senior Associate/Investment Manager > Principal > Partner
The investment team spends a majority of their time meeting with founders, working on market evaluations, doing due diligence, taking board seats, and working with the founders and companies they invest in.
In more recent times, some firms, especially in America, have integrated a platform team to offer a wide range of post-investment support to their portfolio companies. Examples include supporting portfolio companies with recruiting, community, business development, and branding advice. In doing so, portfolio companies and founders are given a competitive advantage to succeed.
Is Venture Capital right for me?
Before we answer this question, we need to have a quick look at the different types of venture capital firms:
Early-stage vs. Later-stage
Early-stage: Companies are often in the pre-product or pre-revenue stage. Therefore, a more qualitative assessment is required; this is usually based on people, markets, and ideas. A lot of time is spent meeting teams and getting a good sense of what they are building and the market they’re in.
Later-stage: Much more data-driven, and the focus is on analyzing the financial and operating data that is available. The idea is to look for areas for gradual growth by assessing the company and business model.
For this article, we’ll be focusing on early-stage venture capital. Early-stage venture capital is a very niche area that has no set background or career trajectory. The role has more to do with investigative journalism than any job that you will find in the digital ecosystem. Similarly to investigative journalism, this role requires you to go out there, pursue leads, and form an informed opinion on those leads, based on very little available information.
Jobs within Venture Capital
Hired straight out of university with their business, finance, or computer science degrees, analysts mostly work on conducting research into specific markets or companies. These tasks support the Associates in carrying out their lead generation and due diligence activities. It’s an excellent opportunity for getting on-the-job training in financial and market analysis and can lead to an Associate position.
Usually, the route for individuals with a few years of work experience in investment banking, management consulting, business development, or product management. Associates are tasked with sourcing investments, deal execution (performing due diligence, conducting market research and negotiating deals), as well as supporting the firm’s portfolio companies. They shortlist the most viable startups for Principals and Partners to conduct deals with.
At many firms, the career progression ends here, and you will need to either get an MBA or some more years of on the job experience to move up the ladder.
3. Senior Associate
An MBA from a prestigious business school is your first (and most direct) “in” for this position. Most of the everyday tasks mirror that of an associate, but as apprentices to Principals and Partners, they represent the fund at portfolio companies and take on observer seats in portfolio companies’ boards. The usual career progression is to move into principal roles after two to three years.
How To Get Into Venture Capital
Getting a venture capital job fresh out of university is very rare, but graduating from a top-tier university will give you a strategic advantage. The subject you study is not as important. While many top venture capitalists graduated in computer science or business, there are many notable exceptions: Paul Graham, the founder of Y Combinator, studied Philosophy, and Michael Moritz of Sequoia Capital studied history. The best way to get into a venture capital fund after graduation is to have a couple of internships completed during your studies in either startup, consulting or investment banking, or use an internship at a venture capital fund as your gateway.
In Europe, management consultants tend to have a bigger edge with their proven analytical mindset, adaptability, and strong work ethic. A successful young venture capitalist would have to bring a specific skill set or perspective on a business model, technology, or market. This can be attained by getting experience in working in a startup to understand the pain points of an early-stage company. Roles in operations, product, or business development would prove useful in a venture capital fund when it comes to evaluating teams and businesses.
Other than being analytical and able to work with numbers, curiosity, a keen interest in entrepreneurship and startups, as well as great communication skills, are highly valued. You should have a thorough overview of industry trends and companies and be able to provide detailed evaluations that are cemented in market analysis.
Top Skills for Venture Capital
You’re tasked with looking for the next Google, Facebook, and Whatsapp for your fund. That means you need to have your finger on the pulse of what’s happening in your industry and startup scene. A lot of your information is going to come in through your direct network - so you need to be out there and speak with lots of founders.
Getting access to and closing deals requires a lot of hustle. Externally, as well as internally: even once you source a deal, you must convince internal stakeholders that it’s one worth closing.
Early-stage investing is all about finding a needle in the haystack. Technologies, markets, and trends are constantly changing. Learning about new industries, companies, and technologies is a must if you want to be at the top of the game.
Salaries for venture capitalist jobs vary depending on the firm, fund size, and location. In Europe, an Analyst starting salary will average at around 40.000€, while an associate will start at around 60.000€. While more senior team members will benefit from a firm’s returns through the so-called “carry”, this is unusual for junior members.
Tips & Tricks
Keep your eyes and ears open
There isn’t a set recruiting cycle for venture capital firms, but a sign that a venture capital might be looking to expand their team is if they raise a new fund. One way to stay up to date with such news is to have a network of contacts you can check in with. Attending venture capital or startup related networking events is a great way to expand your network and stay clued in.
Put yourself out there
Show tenacity and drive by reaching out to individuals at the venture capital firms you’re most interested in. That said, it’s not about cold emailing and sending out mass LinkedIn requests. Instead, focus on a select few individuals and venture capital firms, and ask for advice. As most venture capital jobs aren’t posted publicly (though this is slowly changing), this approach also helps you build up a network of connections to tap into.
Research, research, research
Whether it’s books, podcasts, articles, or interviews with venture capital firms, it’s on you to improve your depth of knowledge and prove your worth to the fund of your dreams.